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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.
20549



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FORM 10-Q



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(Mark One)



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



FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2006



OR



| ̈ |  | 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: 0-10815



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UNIFIED WESTERN GROCERS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 95-0615250                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



5200 Sheila Street, Commerce,
CA 90040

(Address of principal executive offices) (Zip Code)



(323) 264-5200

(Registrants telephone number, including area code)



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



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.
(Check one):



|                                |  |                           |  |                           
|------------------------------- |  | ------------------------- |  | --------------------------
|Large accelerated filer  [    ] |  | Accelerated filer  [    ] |  | Non-accelerated filer  [X]



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



The number of shares outstanding of each of the registrants classes of common stock, as of April 29, 2006, were as follows:



Class A: 129,250 shares;Class B:483,390 shares;Class C:15 shares;Class E:154,603 shares



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##### Table of Contents

Table of Contents



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|Item       |  |                                                                                       |  | Page
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |     
|           |  |                                                                                      
|Item 1.    |  | Financial Statements (Unaudited)                                                      |  |     
|           |  | Consolidated Condensed Balance Sheets                                                 |  | 3   
|           |  | Consolidated Condensed Statements of Earnings and Comprehensive Earnings              |  | 4   
|           |  | Consolidated Condensed Statements of Cash Flows                                       |  | 5   
|           |  | Notes to Consolidated Condensed Financial Statements                                  |  | 7   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13  
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 32  
|Item 4.    |  | Controls and Procedures                                                               |  | 33  
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |     
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 33  
|Item 1A.   |  | Risk Factors                                                                          |  | 34  
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 34  
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 34  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 34  
|Item 5.    |  | Other Information                                                                     |  | 34  
|Item 6.    |  | Exhibits                                                                              |  | 35  
|           | 
|Signatures |  |                                                                                      



2



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##### Table of Contents

PART I.    FINANCIAL INFORMATION



ITEM 1.    FINANCIAL STATEMENTS (UNAUDITED)



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Unified Western Grocers, Inc. and Subsidiaries



Consolidated Condensed Balance Sheets  Unaudited



(dollars in thousands)



|                                                                                                                                       |  |              |         |   |                |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | -------------- | - | ------- | -
|                                                                                                                                       |  | April 1,2006 |         |   | October 1,2005 |  
|Assets                                                                                                                                 |  |              |         |   |                |   |         |  
|                                                                                                                                       |  |             
|Current assets:                                                                                                                        |  |              |         |   |                |   |         |  
|Cash and cash equivalents                                                                                                              |  | $            | 13,933  |   |                | $ | 17,437  |  
|Accounts and notes receivable, net of allowances of $2,374 and $2,538 at April 1, 2006 and October 1, 2005, respectively               |  |              | 138,875 |   |                |   | 145,279 |  
|Inventories                                                                                                                            |  |              | 179,499 |   |                |   | 193,157 |  
|Prepaid expenses                                                                                                                       |  |              | 6,243   |   |                |   | 6,948   |  
|Deferred income taxes                                                                                                                  |  |              | 12,408  |   |                |   | 12,408  |  
|                                                                                                                                       | 
|Total current assets                                                                                                                   |  |              | 350,958 |   |                |   | 375,229 |  
|Properties, net                                                                                                                        |  |              | 176,969 |   |                |   | 177,946 |  
|Investments                                                                                                                            |  |              | 73,960  |   |                |   | 78,604  |  
|Notes receivable, net of allowances of $888 and $921 at April 1, 2006 and October 1, 2005, respectively                                |  |              | 9,056   |   |                |   | 9,584   |  
|Goodwill                                                                                                                               |  |              | 27,982  |   |                |   | 27,982  |  
|Other assets, net                                                                                                                      |  |              | 39,216  |   |                |   | 38,704  |  
|                                                                                                                                       | 
|Total Assets                                                                                                                           |  | $            | 678,141 |   |                | $ | 708,049 |  
|                                                                                                                                       | 
|Liabilities and Shareholders Equity                                                                                                   |  |              |         |   |                |   |         |  
|                                                                                                                                       |  |             
|Current liabilities:                                                                                                                   |  |              |         |   |                |   |         |  
|Accounts payable                                                                                                                       |  | $            | 135,238 |   |                | $ | 156,754 |  
|Accrued liabilities                                                                                                                    |  |              | 112,225 |   |                |   | 118,835 |  
|Current portion of notes payable                                                                                                       |  |              | 9,590   |   |                |   | 10,826  |  
|Members excess deposits and estimated patronage dividends                                                                             |  |              | 18,645  |   |                |   | 13,432  |  
|                                                                                                                                       | 
|Total current liabilities                                                                                                              |  |              | 275,698 |   |                |   | 299,847 |  
|Notes payable, less current portion                                                                                                    |  |              | 142,326 |   |                |   | 156,640 |  
|Long-term liabilities, other                                                                                                           |  |              | 101,258 |   |                |   | 98,233  |  
|Members deposits and certificates:                                                                                                    |  |              |         |   |                |   |         |  
|Members required deposits                                                                                                             |  |              | 10,510  |   |                |   | 10,367  |  
|Subordinated patronage dividend certificates                                                                                           |  |              | 3,141   |   |                |   | 3,141   |  
|Commitments and contingencies                                                                                                          |  |              |         |   |                |   |         |  
|                                                                                                                                       |  |             
|Shareholders equity:                                                                                                                  |  |              |         |   |                |   |         |  
|Class A Shares: 500,000 shares authorized, 131,000 and 132,800 shares outstanding at April 1, 2006 and October 1, 2005,
respectively   |  |              | 20,797  |   |                |   | 21,023  |  
|Class B Shares: 2,000,000 shares authorized, 483,390 and 505,757 shares outstanding at April 1, 2006 and October 1, 2005,
respectively |  |              | 78,397  |   |                |   | 81,913  |  
|Class E Shares: 2,000,000 shares authorized, 154,603 and 155,711 shares outstanding at April 1, 2006 and October 1, 2005,
respectively |  |              | 15,460  |   |                |   | 15,571  |  
|Retained earnings after elimination of accumulated deficit of $26,976 effective September 28, 2002                                     |  |              | 31,856  |   |                |   | 22,514  |  
|Receivable from sale of Class A Shares to members                                                                                      |  |              | (464    | ) |                |   | (726    | )
|Accumulated other comprehensive loss                                                                                                   |  |              | (838    | ) |                |   | (474    | )
|                                                                                                                                       | 
|Total shareholders equity                                                                                                             |  |              | 145,208 |   |                |   | 139,821 |  
|                                                                                                                                       | 
|Total Liabilities and Shareholders Equity                                                                                             |  | $            | 678,141 |   |                | $ | 708,049 |  
|                                                                                                                                       | 



The accompanying notes are an
integral part of these statements.



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Unified Western Grocers, Inc. and Subsidiaries



Consolidated Condensed Statements of Earnings

and Comprehensive Earnings  Unaudited



(dollars in thousands)



|                                                               |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|-------------------------------------------------------------- |  | -------------------- | ------- | - | ---------------------- | - | ------- | ------------- |  | - | ------------- | - |  | - | --------- | -
|                                                               | 
|                                                               |  | Thirteen Weeks Ended |         |   | Twenty-Six Weeks Ended |  
|                                                               |  | April 1,2006         |         |   | April 2,2005           |   |         | April 1, 2006 |  |   | April 2, 2005 |  
|                                                               | 
|Net sales                                                      |  | $                    | 710,034 |   |                        | $ | 696,480 |               |  | $ | 1,460,842     |   |  | $ | 1,426,166 |  
|Cost of sales                                                  |  |                      | 636,954 |   |                        |   | 625,602 |               |  |   | 1,311,336     |   |  |   | 1,275,499 |  
|Distribution, selling and administrative expenses              |  |                      | 58,790  |   |                        |   | 59,562  |               |  |   | 118,573       |   |  |   | 121,913   |  
|                                                               | 
|Operating income                                               |  |                      | 14,290  |   |                        |   | 11,316  |               |  |   | 30,933        |   |  |   | 28,754    |  
|Interest expense                                               |  |                      | (3,507  | ) |                        |   | (3,705  | )             |  |   | (7,498        | ) |  |   | (7,573    | )
|                                                               | 
|Earnings before estimated patronage dividends and income taxes |  |                      | 10,783  |   |                        |   | 7,611   |               |  |   | 23,435        |   |  |   | 21,181    |  
|Estimated patronage dividends                                  |  |                      | (4,267  | ) |                        |   | (3,557  | )             |  |   | (9,363        | ) |  |   | (11,709   | )
|                                                               | 
|Earnings before income taxes                                   |  |                      | 6,516   |   |                        |   | 4,054   |               |  |   | 14,072        |   |  |   | 9,472     |  
|Income taxes                                                   |  |                      | (2,527  | ) |                        |   | (1,907  | )             |  |   | (4,276        | ) |  |   | (3,443    | )
|                                                               | 
|Net earnings                                                   |  |                      | 3,989   |   |                        |   | 2,147   |               |  |   | 9,796         |   |  |   | 6,029     |  
|Other comprehensive earnings, net of income taxes:             |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|Unrealized holding loss on investments                         |  |                      | (336    | ) |                        |   | (543    | )             |  |   | (364          | ) |  |   | (362      | )
|                                                               | 
|Comprehensive earnings                                         |  | $                    | 3,653   |   |                        | $ | 1,604   |               |  | $ | 9,432         |   |  | $ | 5,667     |  
|                                                               | 



The accompanying notes are an
integral part of these statements.



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Unified Western Grocers, Inc. and Subsidiaries



Consolidated Condensed Statements of Cash Flows  Unaudited



(dollars in thousands)



|                                                                                    |  |                        |         |   |               |   |         |  
|----------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                    | 
|                                                                                    |  | Twenty-Six Weeks Ended |        
|                                                                                    |  | April 1, 2006          |         |   | April 2, 2005 |  
|                                                                                    | 
|Cash flows from operating activities:                                               |  |                        |         |   |               |   |         |  
|Net earnings                                                                        |  | $                      | 9,796   |   |               | $ | 6,029   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                        |         |   |               |   |         |  
|Depreciation and amortization                                                       |  |                        | 10,256  |   |               |   | 12,595  |  
|(Decrease) increase in provision for doubtful accounts                              |  |                        | (164    | ) |               |   | 665     |  
|Loss on sale of properties                                                          |  |                        | 62      |   |               |   | 27      |  
|Deferred income taxes                                                               |  |                        |        |   |               |   | (1,084  | )
|Purchases of trading securities                                                     |  |                        | (3,739  | ) |               |   | (1,296  | )
|Proceeds from maturities or sales of trading securities                             |  |                        | 10,715  |   |               |   | 111     |  
|(Increase) decrease in assets:                                                      |  |                        |         |   |               |   |         |  
|Accounts receivable                                                                 |  |                        | 7,731   |   |               |   | 307     |  
|Inventories                                                                         |  |                        | 13,658  |   |               |   | 18,564  |  
|Prepaid expenses                                                                    |  |                        | 705     |   |               |   | 2,733   |  
|Increase (decrease) in liabilities:                                                 |  |                        |         |   |               |   |         |  
|Accounts payable                                                                    |  |                        | (21,516 | ) |               |   | (11,018 | )
|Accrued liabilities                                                                 |  |                        | (6,610  | ) |               |   | (2,748  | )
|Long-term liabilities, other                                                        |  |                        | 3,025   |   |               |   | 3,337   |  
|                                                                                    | 
|Net cash provided by operating activities                                           |  |                        | 23,919  |   |               |   | 28,222  |  
|                                                                                    | 
|Cash flows from investing activities:                                               |  |                        |         |   |               |   |         |  
|Purchases of properties                                                             |  |                        | (6,599  | ) |               |   | (3,586  | )
|Purchases of securities and other investments                                       |  |                        | (20,937 | ) |               |   | (13,242 | )
|Proceeds from maturities or sales of securities and other investments               |  |                        | 18,039  |   |               |   | 11,533  |  
|Increase in notes receivable                                                        |  |                        | (635    | ) |               |   | (2,191  | )
|Proceeds from sales of properties                                                   |  |                        | 200     |   |               |   | 39      |  
|Increase in other assets                                                            |  |                        | (3,089  | ) |               |   | (2,612  | )
|                                                                                    | 
|Net cash utilized by investing activities                                           |  |                        | (13,021 | ) |               |   | (10,059 | )
|                                                                                    | 
|Cash flows from financing activities:                                               |  |                        |         |   |               |   |         |  
|Reduction of long-term notes payable                                                |  |                        | (8,016  | ) |               |   | (25,043 | )
|Reduction of short-term notes payable                                               |  |                        | (7,697  | ) |               |   | (4,703  | )
|Members excess deposits and estimated patronage dividends                          |  |                        | 5,213   |   |               |   | 5,716   |  
|Increase in members required deposits                                              |  |                        | 143     |   |               |   | 2,747   |  
|Decrease in receivable from sale of Class A Shares to members                       |  |                        | 262     |   |               |   | 152     |  
|Repurchase of shares from members                                                   |  |                        | (4,739  | ) |               |   | (5,219  | )
|Issuance of shares to members                                                       |  |                        | 432     |   |               |   | 384     |  
|                                                                                    | 
|Net cash utilized by financing activities                                           |  |                        | (14,402 | ) |               |   | (25,966 | )
|                                                                                    | 
|Net decrease in cash and cash equivalents                                           |  |                        | (3,504  | ) |               |   | (7,803  | )
|Cash and cash equivalents at beginning of period                                    |  |                        | 17,437  |   |               |   | 43,443  |  
|                                                                                    | 
|Cash and cash equivalents at end of period                                          |  | $                      | 13,933  |   |               | $ | 35,640  |  
|                                                                                    | 



The accompanying notes are an
integral part of these statements.



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Unified Western Grocers, Inc. and Subsidiaries



Consolidated Condensed
Statements of Cash Flows  Unaudited  Continued



(dollars in
thousands)



|                                                                                                                                  |  |                        |       |               |   |      
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------- | - | -----
|                                                                                                                                 
|                                                                                                                                  |  | Twenty-Six Weeks Ended
|                                                                                                                                  |  | April 1, 2006          |       | April 2, 2005
|                                                                                                                                 
|Supplemental disclosure of cash flow information:                                                                                 |  |                        |       |               |   |      
|Cash paid during the period for:                                                                                                  |  |                        |       |               |   |      
|Interest                                                                                                                          |  | $                      | 6,737 |               | $ | 6,983
|Income taxes                                                                                                                      |  | $                      | 8,242 |               | $ | 4,527
|                                                                                                                                 
|Supplemental disclosure of non-cash items:                                                                                        |  |                        |       |               |   |      
|Retirement of Class B Shares                                                                                                      |  | $                      |      |               | $ | 1,234
|Reduction in purchase accounting reserve against goodwill                                                                         |  | $                      |      |               | $ | 300  
|Increase to pre quasi-reorganization discontinued operations and lease reserves, net of deferred taxes of $33 as of April 2, 2005 |  | $                      |      |               | $ | 52   
|                                                                                                                                 



The accompanying notes are an
integral part of these statements.



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Unified Western Grocers, Inc. and Subsidiaries



Notes to Consolidated Condensed Financial Statements (Unaudited)



1.    BASIS OF PRESENTATION



The consolidated
condensed financial statements include the accounts of Unified Western Grocers, Inc. and all its subsidiaries (the Company or Unified). Inter-company transactions and accounts with subsidiaries have been eliminated. The
interim financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the SEC). Certain information and footnote
disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to SEC rules and regulations; nevertheless, management believes
that the disclosures are adequate to make the information presented not misleading. These consolidated condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the
Companys latest annual report on Form 10-K filed with the SEC. The results of operations for the interim periods are not necessarily indicative of the results for the full year.



The accompanying consolidated condensed financial statements reflect all adjustments that, in the opinion of management, are both of a normal and
recurring nature and necessary for the fair presentation of the results for the interim periods presented. The preparation of the consolidated condensed financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes. As a result, actual results could differ from those estimates.



The Companys banking arrangements allow the Company to fund outstanding checks
when presented to the financial institution for payment. This cash management practice frequently results in total issued checks exceeding the available cash balance at a single financial institution. The Companys policy is to record its cash
disbursement accounts with a cash book overdraft in accounts payable. At April 1, 2006 and October 1, 2005, the Company had book overdrafts of $27.7 million and $47.7 million, respectively, classified in accounts payable.



Certain other amounts in the prior periods consolidated condensed financial statements have been
reclassified to conform to the current periods presentation.



2.    VARIABLE INTEREST ENTITY



In fiscal 2004, the
Company signed a purchase and sale agreement with an unrelated business property developer to transfer and assign the leasehold and sub-leasehold interests and certain assets relating to eleven closed store locations.



At April 1, 2006, the Company remains contingently liable for the lease payments on eight store
locations until such time as the leases expire or the Company is released from all liabilities and obligations under the respective leases. The net present value of the Companys currently estimated obligation for the remaining leasehold and
sub-leasehold interests for the eight stores totals approximately $3.7 million at April 1, 2006, with the last lease expiring in 2019. The Companys maximum loss exposure related to these leases is $20.4 million.



The Financial Accounting Standards Board (FASB) issued in January 2003 and revised in
December 2003 FASB Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities  an Interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial
Statements.Although the Company has no ownership interest in the unrelated third party that assumed the leasehold and sub-leasehold interests from the Company, that third party is considered a variable interest entity pursuant to FIN 46R.
Because the primary investor in the variable interest entity currently does not have sufficient equity at risk, the Company is considered the primary beneficiary. Accordingly, the Company is required to consolidate the assets, liabilities and
non-controlling interests of the variable interest entity, as well as the results of operations.



At April 1, 2006 and October 1, 2005, the Company consolidated the variable interest entitys accounts, including total assets of $1.1 and $1.5 million, respectively, comprised primarily of $0.1 million and $0.4 million in
properties, respectively, and $1.0 million and $1.1 million in other assets, respectively, to be used in the development of the properties and for payment of lease obligations, with lease reserves of approximately $3.7 and $3.0 million,
respectively.



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Unified Western Grocers, Inc. and Subsidiaries



Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)





3.    SEGMENT INFORMATION



Unified is a retailer-owned, grocery wholesale cooperative serving independent and chain supermarket operators located primarily in the western United
States and in the South Pacific. Unified sells a wide variety of grocery-related and general merchandise products to its customers. The Companys customers include its owners (Members) and non-owners (non-members).
Unified also provides support services to its customers, including financing and insurance. The availability of specific products and services may vary by geographic region.



Management identifies segments based on the information monitored by the Companys chief operating decision-makers to manage the business and,
accordingly, has the following two reportable segments:



| | · |  | Wholesale Distribution includes the results of operations from the sale of food and general merchandise products to both Members and non-members. As of April 1, 2006, the Wholesale
Distribution segment represents approximately 99% of the Companys total sales and 84.4% of total assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The Insurance segment includes the results of operations for the Companys three insurance subsidiaries (Grocers and Merchants Insurance Service, Inc., Springfield Insurance Company and
Springfield Insurance Company, Ltd.). These subsidiaries provide insurance and insurance-related services, including workers compensation and liability insurance policies, to both the Company and its Members primarily located in California. As
of April 1, 2006, the Companys Insurance segment accounts for approximately 1% of the Companys total sales and 13% of total assets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The all other category includes the results of operations for the Companys other support businesses, including its finance
subsidiary, whose services are provided to a common customer base, none of which individually meets the quantitative thresholds of a reportable segment. As of April 1, 2006, the all other category collectively accounts for less than
1% of the Companys total sales and 2.6% of total assets.



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Unified Western Grocers, Inc. and Subsidiaries



Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)





Information about the Companys operating segments is summarized below.



|                                    |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|----------------------------------- |  | -------------------- | ------- | - | ---------------------- | - | ------- | ------------- |  | - | ------------- | - |  | - | --------- | -
|(dollars in thousands)              |  |                      |         |   |                        |   |         |               | 
|                                    |  | Thirteen Weeks Ended |         |   | Twenty-Six Weeks Ended |  
|                                    |  | April 1, 2006        |         |   | April 2, 2005          |   |         | April 1, 2006 |  |   | April 2, 2005 |  
|Net sales                           |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|Wholesale distribution              |  | $                    | 706,554 |   |                        | $ | 690,184 |               |  | $ | 1,452,813     |   |  | $ | 1,413,396 |  
|Insurance                           |  |                      | 5,183   |   |                        |   | 7,573   |               |  |   | 11,485        |   |  |   | 15,874    |  
|All other                           |  |                      | 422     |   |                        |   | 344     |               |  |   | 837           |   |  |   | 686       |  
|Inter-segment eliminations          |  |                      | (2,125  | ) |                        |   | (1,621  | )             |  |   | (4,293        | ) |  |   | (3,790    | )
|                                    | 
|Total net sales                     |  | $                    | 710,034 |   |                        | $ | 696,480 |               |  | $ | 1,460,842     |   |  | $ | 1,426,166 |  
|                                    | 
|Operating income                    |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|Wholesale distribution              |  | $                    | 12,818  |   |                        | $ | 11,069  |               |  | $ | 26,698        |   |  | $ | 27,128    |  
|Insurance                           |  |                      | 1,409   |   |                        |   | 727     |               |  |   | 4,519         |   |  |   | 2,147     |  
|All other                           |  |                      | 63      |   |                        |   | (480    | )             |  |   | (284          | ) |  |   | (521      | )
|                                    | 
|Total operating income              |  |                      | 14,290  |   |                        |   | 11,316  |               |  |   | 30,933        |   |  |   | 28,754    |  
|                                    | 
|Interest expense                    |  |                      | (3,507  | ) |                        |   | (3,705  | )             |  |   | (7,498        | ) |  |   | (7,573    | )
|Estimated patronage dividends       |  |                      | (4,267  | ) |                        |   | (3,557  | )             |  |   | (9,363        | ) |  |   | (11,709   | )
|Income taxes                        |  |                      | (2,527  | ) |                        |   | (1,907  | )             |  |   | (4,276        | ) |  |   | (3,443    | )
|                                    | 
|Net earnings                        |  | $                    | 3,989   |   |                        | $ | 2,147   |               |  | $ | 9,796         |   |  | $ | 6,029     |  
|                                    | 
|Depreciation and amortization       |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|Wholesale distribution              |  | $                    | 4,942   |   |                        | $ | 6,010   |               |  | $ | 10,145        |   |  | $ | 12,450    |  
|Insurance                           |  |                      | 50      |   |                        |   | 69      |               |  |   | 109           |   |  |   | 141       |  
|All other                           |  |                      |        |   |                        |   | 2       |               |  |   | 2             |   |  |   | 4         |  
|                                    | 
|Total depreciation and amortization |  | $                    | 4,992   |   |                        | $ | 6,081   |               |  | $ | 10,256        |   |  | $ | 12,595    |  
|                                    | 
|Capital expenditures                |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|Wholesale distribution              |  | $                    | 4,465   |   |                        | $ | 2,797   |               |  | $ | 6,571         |   |  | $ | 3,524     |  
|Insurance                           |  |                      | 12      |   |                        |   | 33      |               |  |   | 20            |   |  |   | 62        |  
|All other                           |  |                      | 8       |   |                        |   |        |               |  |   | 8             |   |  |   |          |  
|                                    | 
|Total capital expenditures          |  | $                    | 4,485   |   |                        | $ | 2,830   |               |  | $ | 6,599         |   |  | $ | 3,586     |  
|                                    | 
|Identifiable assets                 |  |                      |         |   |                        |   |         |               |  |   |               |   |  |   |           |  
|Wholesale distribution              |  | $                    | 572,472 |   |                        | $ | 585,026 |               |  | $ | 572,472       |   |  | $ | 585,026   |  
|Insurance                           |  |                      | 87,778  |   |                        |   | 83,683  |               |  |   | 87,778        |   |  |   | 83,683    |  
|All other                           |  |                      | 17,891  |   |                        |   | 20,795  |               |  |   | 17,891        |   |  |   | 20,795    |  
|                                    | 
|Total identifiable assets           |  | $                    | 678,141 |   |                        | $ | 689,504 |               |  | $ | 678,141       |   |  | $ | 689,504   |  
|                                    | 



4.    SHAREHOLDERS
EQUITY



During the 26-week period ended April 1, 2006, the Company issued 1,750
Class A Shares with an issue value of $0.34 million and redeemed 3,550 Class A Shares with a redemption value of $0.65 million. In addition, the Company issued 1,088 Class B Shares with an issue value of $0.2 million and also redeemed
23,455 Class B Shares with a redemption value of $4.09 million. The Company also voided 1,108 Class E Shares in the amount of $0.1 million.



5.    NOTES PAYABLE



On January 6, 2006 (the effective date), the Company entered into an agreement (the Amendment) with John Hancock Life Insurance Company
(Hancock) to amend and restate its Senior Note Agreement ($92.5 million at October 1, 2005) to $96.8 million as of the effective date of the Amendment. The Amendment extends the



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##### Table of Contents

Unified Western Grocers, Inc. and Subsidiaries



Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)





maturity date to January 1, 2016 from April 1, 2008 and October 1, 2009 on $86.0 million of the notes. The Amendment also decreases interest rates that
ranged from 7.72% to 8.71% on $86.0 million of notes to a range of 6.421% to 7.157%. The Amendment calls for interest only payments for the first five years of the term, and then starting on the 61st payment, principal plus interest on the $86.0
million of notes. At the maturity date, a balloon payment of $66.8 million is due. In addition, $10.8 million of notes will mature on April 1, 2008 (monthly payments of principal plus interest at 7.72%) and October 1, 2009 (monthly
payments of interest only at 8.71%), with balloon payments of $4.4 million and $4.5 million, respectively. The amount outstanding under the amended Senior Note Agreement was $96.8 million at April 1, 2006.



The notes continue to be secured by certain of the Companys personal and real property and
contain customary covenants, default provisions (including acceleration of the debt in the event of an uncured default), and prepayment penalties similar to those included in the original note purchase agreement.



6.    PENSION AND OTHER POSTRETIREMENT BENEFITS



The Company sponsors a cash balance plan (Cash Balance Plan). The Cash Balance Plan is a
noncontributory defined benefit pension plan covering substantially all employees of the Company who are not subject to a collective bargaining agreement. Benefits under the Cash Balance Plan are provided through a trust and also through annuity
contracts.



The Company also sponsors an executive salary protection plan (ESPP
II) that provides supplemental post-termination retirement income based on each participants final salary and years of service as an officer of the Company. Funds are held in a rabbi trust for the ESPP II consisting primarily of life
insurance policies reported at cash surrender value. The cash surrender value of such life insurance policies aggregated $14.3 million and $13.6 million at April 1, 2006 and October 1, 2005, respectively, and are included in other assets
in the Companys consolidated condensed balance sheets. The related accrued benefit cost (representing the Companys benefit obligation to participants) of $13.3 million and $12.7 million at April 1, 2006 and October 1, 2005,
respectively, is recorded in other long-term liabilities in the Companys consolidated condensed balance sheets. The ESPP II accrued benefit cost is included in the pension table below. However, the trust assets are excluded from ESPP II plan
assets as they do not qualify as plan assets under Statement of Financial Accounting Standards (SFAS) No. 87, Employers Accounting for Pensions (SFAS 87). The assets held in the rabbi trust are
not available for general corporate purposes. The rabbi trust is subject to creditor claims in the event of insolvency.



The Company sponsors postretirement benefit plans that cover both non-union and union employees. The plans are not funded.



The components of net periodic cost for pension (Cash Balance Plan and ESPP II) and other
postretirement benefits for the twenty-six weeks ended April 1, 2006 and April 2, 2005 consist of the following:



|                                   |  |                  |        |   |                              |   |        |              |  |              |       |  |   |      
|---------------------------------- |  | ---------------- | ------ | - | ---------------------------- | - | ------ | ------------ |  | ------------ | ----- |  | - | -----
|                                   |  | Pension Benefits |        |   | Other PostretirementBenefits
|                                   |  | April 1,2006     |        |   | April 2,2005                 |   |        | April 1,2006 |  | April 2,2005
|Service cost                       |  | $                | 2,442  |   |                              | $ | 2,378  |              |  | $            | 825   |  | $ | 674  
|Interest cost                      |  |                  | 3,353  |   |                              |   | 3,182  |              |  |              | 1,704 |  |   | 1,727
|Expected return on plan assets     |  |                  | (3,278 | ) |                              |   | (2,849 | )            |  |              |      |  |   |     
|Amortization of prior service cost |  |                  | 120    |   |                              |   | 120    |              |  |              |      |  |   |     
|Recognized actuarial loss          |  |                  | 70     |   |                              |   | 17     |              |  |              | 372   |  |   | 216  
|                                  
|Net periodic cost                  |  | $                | 2,707  |   |                              | $ | 2,848  |              |  | $            | 2,901 |  | $ | 2,617
|                                  



The Companys net periodic benefit cost for
its combined pension and other postretirement benefits was approximately $5.6 million for the twenty-six week period ended April 1, 2006 compared to $5.5 million for the twenty-six week period ended April 2, 2005.



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Unified Western Grocers, Inc. and Subsidiaries



Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)





The Company funding policy is to make contributions to the Cash Balance Plan in amounts that are at least sufficient to meet
the minimum funding requirements of applicable laws and regulations, but no more than amounts deductible for federal income tax purposes. Commencing with the quarterly contribution of $1.04 million made on April 14, 2006, the Company expects to
make contributions of $1.04 million per quarter for the remainder of the 2006 plan year. Subsequent to April 14, 2006, additional contributions will be due July 15, 2006, October 15, 2006 and January 15, 2007. At its
discretion, the Company may contribute in excess of these amounts. Additional contributions for the 2005 plan year, if any, will be due by September 15, 2006, while contributions for the 2006 plan year will be due by September 15, 2007.
The Company contributed $0.6 million to the ESPP II during the twenty-six weeks ended April 1, 2006 to fund projected benefit payments to participants for the 2006 plan year.



At April 1, 2006, the fair value of the Cash Balance Plan assets increased to $86.3 million from $73.2 million at October 1, 2005.



7.    RELATED PARTY TRANSACTIONS



Prior to fiscal year 2004, the Company purchased 80,000 shares of preferred stock (the Series
A-1 Preferred Shares) from C&K Market, Inc. (C&K) for $8.0 million. Douglas A. Nidiffer, a director of the Company, is a shareholder, director and an officer of C&K. In connection with a capital restructuring of C&K
during fiscal year 2004 (approved by the Company and an unrelated third party lender), the Company exchanged its 80,000 Series A-1 Preferred Shares and $1.5 million of deferred dividends for 95,000 shares of Series A-2 Preferred Shares (the
Series A-2 Preferred Shares). The original value of the Series A-2 Preferred Shares was $8.0 million and was to accrete to the redemption value of $9.5 million over 10 years.



On February 9, 2006, C&K repurchased the 95,000 shares of Series A-2 Preferred Shares held by Unified for $9.8 million. The payment included
$9.5 million for the redemption value of the Series A-2 Preferred Shares and $0.3 million for accrued dividends. The investment was carried at $8.4 million, which represented the original value of the Series A-2 Preferred Shares plus cumulative
accretion through the date of repurchase. As a result of the share repurchase, the Company recognized a gain on the difference between the carrying value of the investment and the redemption value of approximately $1.1 million.



8.    NEW ACCOUNTING PRONOUNCEMENTS



In November 2005, the FASB issued FASB Staff Position (FSP) No. FSP FAS 115-1 and FAS
124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP 115-1 and 124-1). FSP 115-1 and 124-1 addresses determining when an investment is considered impaired and whether
that impairment is other-than-temporary, and measuring impairment loss as well as addressing the accounting after an entity recognized an other-than-temporary impairment. Certain disclosures about unrealized losses that the entity did not recognize
as other-than-temporary impairments are also addressed. FSP 115-1 and 124-1 is effective for periods beginning after December 15, 2005. The Company adopted this pronouncement beginning with its second fiscal quarter of 2006. The adoption of
this accounting pronouncement did not have a significant impact on the Companys financial condition and results of operations.



In October 2005, the FASB issued FSP FAS No. 13-1, Accounting for Rental Costs Incurred During a Construction Period (FSP No. 13-1), which
requires rental costs associated with ground or building operating leases that are incurred during a construction period to be recognized as rental expense. FSP No. 13-1 is effective for periods beginning after December 15, 2005. The
Company adopted this pronouncement beginning with its second fiscal quarter of 2006. The adoption of this accounting pronouncement did not have an impact on the Companys financial condition and results of operations.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections (SFAS No. 154). SFAS No. 154 requires retrospective application to prior periods financial statements of a voluntary change in accounting principle and that a change in method of depreciation,
amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is effected by a change in



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Unified Western Grocers, Inc. and Subsidiaries



Notes to Consolidated Condensed Financial Statements (Unaudited)(Continued)





accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005
(period ending September 29, 2007 for the Company). The Company does not currently believe that the adoption of SFAS No. 154 will have a significant impact on its financial condition and results of operations.



In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47),
Accounting for Conditional Asset Retirement Obligations  an Interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations.FIN 47 clarifies that the term conditional asset retirement
obligation (CARO) as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143),refers to a legal obligation to perform an asset retirement activity in which
the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the
timing and (or) method of settlement. Therefore, an entity is required to recognize a liability for the fair value of a CARO when that obligation is incurred (generally upon acquisition, construction, or development and (or) through the normal
operation of the asset), if the liabilitys fair value can be reasonably estimated. Any uncertainty surrounding the timing and method of settlement that is conditional on the occurrence of a future event should be factored into the measurement
of the liability, not the timing of its recognition. If sufficient information is not available at the time the liability is incurred, paragraph 3 of SFAS No. 143 requires a liability to be recognized initially in the period in which sufficient
information becomes available to estimate its fair value. The provisions of FIN 47 are effective no later than fiscal years ending after December 15, 2005 (period ending September 30, 2006 for the Company). Retrospective application of
interim financial information is permitted but is not required. The Company is currently assessing the impact of FIN 47 on its results of operations and financial condition.



In December 2004, the FASB issued FASB Staff Position No. FAS 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes,
to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (FSP No. 109-1). FSP No. 109-1 clarifies the guidance in FASB SFAS No. 109, Accounting for
Income Taxes (SFAS No. 109), that applies to the new deduction for qualified domestic production activities under the American Jobs Creation Act of 2004 (the AJCA). FSP No. 109-1 clarifies that the
deduction should be accounted for as a special deduction under SFAS No. 109, not as a tax-rate reduction, because the deduction is contingent on performing activities identified in the AJCA. As a result, companies qualifying for the special
deduction will not have a one-time adjustment of deferred tax assets and liabilities in the period the AJCA is enacted. FSP No. 109-1 requires that tax benefits resulting from the qualified domestic production activities should be recognized no
earlier than the year in which they are reported in the entitys tax return. FSP No. 109-1 is effective upon issuance (December 21, 2004). Since the tax benefits would not be recognized any earlier than the tax year ended
September 30, 2006, the impact, if any, of FSP 109-1 would be reported in the Companys financial statements no earlier than fiscal year ended September 30, 2006. The Company is currently assessing the financial impact of FSP
No. 109-1 on its consolidated condensed financial statements.



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##### Table of Contents

ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FORWARD-LOOKING INFORMATION



This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to expectations concerning matters that (a) are not
historical facts, (b) predict or forecast future events or results, or (c) embody assumptions that may prove to have been inaccurate. These forward-looking statements involve risks, uncertainties and assumptions. When the Company uses
words such as believes, expects, anticipates or similar expressions, the Company is making forward-looking statements. Although Unified believes that the expectations reflected in such forward-looking statements
are reasonable, the Company cannot give readers any assurance that such expectations will prove correct. The actual results may differ materially from those anticipated in the forward-looking statements as a result of numerous factors, many of which
are beyond the Companys control. Important factors that could cause actual results to differ materially from the Companys expectations include, but are not limited to, the factors discussed in the sections entitled Risk
Factors and Critical Accounting Policies and Estimates within Managements Discussion and Analysis of Financial Condition and Results of Operations. All forward-looking statements attributable to Unified are
expressly qualified in their entirety by the factors that may cause actual results to differ materially from anticipated results. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements
opinion only as of the date hereof. The Company undertakes no duty or obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this
document as well as in other documents the Company files from time to time with the Securities and Exchange Commission.



COMPANY OVERVIEW



Unified Western Grocers, Inc. (referred to in this Form 10-Q as Unified, Company, our or we) is a retailer-owned, grocery wholesale cooperative serving supermarket operators located primarily
in the western United States and the South Pacific. The Companys customers range in size from single store operators to regional supermarket chains. The Company operates its business in two reportable business segments: (1) Wholesale
Distribution and (2) Insurance. All remaining business activities are grouped into All Other (see Note 3 of Notes to Consolidated Condensed Financial Statements).



We sell a wide variety of products typically found in supermarkets. We report all product sales in our Wholesale Distribution segment, which
represents approximately 99% of our total sales. Our customers include our owners (Members) and non-owners (non-members). We also provide support services to our customers, including insurance and financing. Insurance
activities account for approximately 1% of total sales and are reported in our Insurance segment, while finance activities are grouped with our All Other business activities. The availability of specific products and services may vary by geographic
region. We have three separate geographical and marketing regions. The regions are Southern California, Northern California and the Pacific Northwest.



A California corporation organized in 1922 and incorporated in 1925, Unified does business primarily with those customers that have been accepted as Members. Members are required
to meet specific member capitalization requirements, which include capital stock ownership and may include required cash deposits. In addition, each Member must meet minimum purchase requirements. The membership requirements, including
capitalization requirements, may be modified at the discretion of the Companys Board of Directors (the Board).



We distribute the earnings from activities conducted with our Members, excluding subsidiaries (collectively patronage business), in the form of patronage dividends. Our
patronage earnings are based on the combined results of the Companys three patronage earnings divisions: the Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division. The Company does business on a
non-patronage basis in the Wholesale Distribution segment through its specialty food subsidiary (Market Centre, formerly known as Grocers Specialty Company) and its international sales subsidiary (Unified International, Inc). These businesses sell
products to both Members and non-members. An entity that does not meet Member purchase requirements or does not desire to become a Member may conduct business with Unified as a non-member customer on a non-patronage basis. The Company does business
through its subsidiaries on a non-patronage basis. Earnings from the Companys subsidiaries and from business conducted with non-members on a non-patronage basis (collectively non-patronage business) are retained by the Company.



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The Company operates various warehouse and office facilities that are located in Commerce, Santa Fe Springs, Stockton, Hayward,
Livermore and Fresno, California and Milwaukie, Oregon. The Company also operates a bakery manufacturing facility and a milk processing plant in Los Angeles, which primarily serve the Southern California region.



Sales Activities and Recent Developments



We experienced an overall sales increase of $34.7 million, or 2.4%, for the twenty-six weeks ended
April 1, 2006 (the 2006 Period) as compared to the twenty-six week period ended April 2, 2005 (the 2005 Period). This increase was due primarily to a $71.5 million, or 4.9%, sales increase in our continuing customer
business driven primarily by new store openings, growth in the Companys perishables divisions, and growth in our specialty grocery subsidiary. Sales related to customers who discontinued their business with us and began purchasing from
competitors resulted in a $32.1 million decline in sales in the 2006 Period versus the 2005 Period.



The marketplace in which we operate continues to evolve and present challenges both to our customers and us. The continued expansion of large box store formats into our marketplace will present challenges for some of the retail
grocery stores owned by our customers. In addition, self-distributing alternative formats such as warehouse, supercenters, discount, drug, natural and organic, and convenience stores continue to expand their offering of products that are a core part
of the conventional grocery store offering, thereby creating additional competition for our customers. Demographic changes have created more ethnic diversity in our marketplace. To effectively compete, our successful customers have focused on, among
other things, differentiation strategies in specialty products and items on the perimeter of the store such as produce, service deli, service bakery and meat categories.



To further enhance our strategy to help our customers differentiate themselves from the competition, during the second quarter of fiscal 2006, we
changed the name of our specialty grocery subsidiary to Market Centre to better reflect the companys broad range of product offerings and unique services that are offered to our retail customers. The new focus on Market Centre will help us
improve this important tool to help our retailers with their individual differentiation strategies. Through our Market Centre subsidiary, we will offer specialty grocery products in four categories: gourmet specialties, ethnic foods, natural/organic
products and confections. In addition to supplying these products, Market Centre will continue to offer a wide range of retail support services, including category development and management, merchandising services, marketing programs and
promotional strategies.



We also support growth by offering promotions on fast-moving
products and by supporting and sponsoring major events that help promote sales at the retail level.



Economic Factors



In recent periods, we have experienced
significant volatility in costs associated with fuel, workers compensation, wages, medical and other benefits. Management continually focuses attention on initiatives aimed at improving business processes and managing costs. These initiatives
have resulted in significant improvements, most notably in improved warehouse and transportation efficiencies. Labor efficiencies, such as the number of cases moved in the warehouse per hour of work, have increased 0.6% in the 2006 Period compared
to the 2005 Period and 5.1% in the 2005 Period compared to the first twenty-six weeks of fiscal 2004.



Technology



Technology improvements have been an important
part of Unifieds strategy to improve service to its customers and lower costs. Over the past two years we have been upgrading our warehouse systems to improve efficiencies and order fulfillment accuracy. We are also in the process of
implementing a new Enterprise Resource Planning (ERP) system that will operate in our dairy processing and bakery plants. The new system will automate our record keeping process, allow for more efficient procurement and production
planning and provide greater visibility of manufacturing variances, thus allowing us to analyze and improve the manufacturing process. Additionally, we have made improvements to better support our interactions with vendors and customers, including
our new item introductions, promotions management and payment support activities that have also helped improve efficiencies and lower costs. These efforts include improvements that complete the supply chain cycle by improving speed-to-shelf for new
items and enhancing retail promotion planning.



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RESULTS OF OPERATIONS



The following discussion of the Companys financial condition and results of operations should be read in conjunction with the consolidated condensed financial statements
and notes to the consolidated condensed financial statements, specifically Note 3 to Notes to Consolidated Condensed Financial Statements, Segment Information, included elsewhere in this report. Certain statements in the following
discussion are not historical in nature and should be considered to be forward-looking statements that are inherently uncertain.



The following table sets forth the percentage of selected consolidated financial data of Unified expressed as a percentage of net sales for the periods indicated and the percentage
increase or decrease in such items over the prior period.



|                                                  |  |                      |   |  |              |   |  |                        |   |  |              |   |  |              |   |  |                 |  
|------------------------------------------------- |  | -------------------- | - |  | ------------ | - |  | ---------------------- | - |  | ------------ | - |  | ------------ | - |  | --------------- | -
|                                                  |  | Thirteen Weeks Ended |   |  | % Change     |   |  | Twenty-Six Weeks Ended |   |  | % Change     |  
|Fiscal Period Ended                               |  | April 1,2006         |   |  | April 2,2005 |   |  | ThirteenWeeks          |   |  | April 1,2006 |   |  | April 2,2005 |   |  | Twenty-SixWeeks |  
|Net sales                                         |  | 100.0                | % |  | 100.0        | % |  | 1.9                    | % |  | 100.0        | % |  | 100.0        | % |  | 2.4             | %
|Cost of sales                                     |  | 89.7                 |   |  | 89.8         |   |  | 1.8                    |   |  | 89.8         |   |  | 89.4         |   |  | 2.8             |  
|Distribution, selling and administrative expenses |  | 8.3                  |   |  | 8.6          |   |  | (1.3                   | ) |  | 8.1          |   |  | 8.6          |   |  | (2.7            | )
|                                                  | 
|Operating income                                  |  | 2.0                  |   |  | 1.6          |   |  | 26.3                   |   |  | 2.1          |   |  | 2.0          |   |  | 7.6             |  
|Interest expense                                  |  | (0.5                 | ) |  | (0.5         | ) |  | (5.3                   | ) |  | (0.5         | ) |  | (0.5         | ) |  | (1.0            | )
|Estimated patronage dividends                     |  | (0.6                 | ) |  | (0.5         | ) |  | 20.0                   |   |  | (0.6         | ) |  | (0.8         | ) |  | (20.0           | )
|Income taxes                                      |  | (0.4                 | ) |  | (0.3         | ) |  | 32.5                   |   |  | (0.3         | ) |  | (0.3         | ) |  | 24.2            |  
|                                                  | 
|Net earnings                                      |  | 0.5                  | % |  | 0.3          | % |  | 85.8                   | % |  | 0.7          | % |  | 0.4          | % |  | 62.5            | %
|                                                  | 



THIRTEEN WEEK PERIOD ENDED APRIL 1, 2006
(2006 PERIOD) COMPARED TO THE THIRTEEN WEEK PERIOD ENDED APRIL 2, 2005 (2005 PERIOD)



Overview of the 2006 Period.    The Companys consolidated operating income was $14.3 million in the 2006 Period compared to $11.3 million in
the 2005 Period. Operating income improved in both of the Companys operating segments and the All Other category.



| | · |  | Wholesale Distribution Segment:    The Wholesale Distribution segments operating income was $12.8 million in the 2006 Period compared to $11.1 million
in the 2005 Period. The increase in operating income was primarily due to continued benefits from increased efficiencies in our operations partially offset by a reduction in margin. We have also benefited from cost reductions in workers
compensation expense due to management actions (implementing safety programs and reducing corporate risk exposure via the use of higher deductible policies) and recent legislative changes. See additional discussion under Net sales 
Wholesale Distribution Segment below.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:    Operating income improved $0.7 million in the Companys Insurance segment to $1.4 million in the 2006 Period compared to $0.7
million in the 2005 Period. Our workers compensation claims development continued to improve during the 2006 Period. The improvement is attributable to several factors, including the positive impact on claims development resulting from
legislative reforms passed by Californias legislature. These reforms have helped to reduce the cost of claims, particularly with respect to medical costs. Continued participation of our customers in higher deductible policies has also
contributed to the improvement. These policies can be less costly for customers and reduce Unifieds portion of its claims loss exposure.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    All Other business activities primarily consist of our finance subsidiary and the consolidation of a variable interest entity as discussed in
Note 2 of the Notes to the Consolidated Condensed Financial Statements in Item 1. Operating income increased $0.6 million to $0.1 million for the 2006 Period compared to a loss of $0.5 million in the 2005 Period, and consisted of $0.2 million
in operating income from our finance subsidiary offset by $0.1 million in operating expense associated with our variable interest entity.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following tables summarize the performance of each business segment for the 2006 and 2005 Periods.



|                                                       |  |   |                                   |   |  |                                   |  |   |                 |   |  |                     |   |  |   |            |  
|------------------------------------------------------ |  | - | --------------------------------- | - |  | --------------------------------- |  | - | --------------- | - |  | ------------------- | - |  | - | ---------- | -
|Wholesale Distribution Segment  (dollars in thousands) |  |   |                                   |   |  |                                   |  |   |                 |   |  |                     |   |  |   |            |  
|                                                       |  |   | Thirteen Weeks EndedApril 1, 2006 |   |  | Thirteen Weeks EndedApril 2, 2005 |  |   |                 |   | 
|                                                       |  |   | Amounts in000s                   |   |  | Percent toNet Sales               |  |   | Amounts in000s |   |  | Percent toNet Sales |   |  |   | Difference |  
|Gross sales                                            |  | $ | 706,554                           |   |  |                                  |  | $ | 690,184         |   |  |                    |   |  | $ | 16,370     |  
|Inter-segment eliminations                             |  |   |                                  |   |  |                                  |  |   |                |   |  |                    |   |  |   |           |  
|                                                       | 
|Net sales                                              |  |   | 706,554                           |   |  | 100.0                             |  |   | 690,184         |   |  | 100.0               |   |  |   | 16,370     |  
|Cost of sales                                          |  |   | 636,680                           |   |  | 90.1                              |  |   | 622,068         |   |  | 90.1                |   |  |   | 14,612     |  
|Distribution, selling and administrative expenses      |  |   | 57,056                            |   |  | 8.1                               |  |   | 57,047          |   |  | 8.3                 |   |  |   | 9          |  
|                                                       | 
|Operating income                                       |  | $ | 12,818                            |   |  | 1.8                               |  | $ | 11,069          |   |  | 1.6                 |   |  | $ | 1,749      |  
|                                                       | 
|Insurance Segment  (dollars in thousands)              |  |   |                                   |   |  |                                   |  |   |                 |   |  |                     |   |  |   |            |  
|                                                       |  |   | Thirteen Weeks EndedApril 1, 2006 |   |  | Thirteen Weeks EndedApril 2, 2005 |  |   |                 |   | 
|                                                       |  |   | Amounts in000s                   |   |  | Percent toNet Sales               |  |   | Amounts in000s |   |  | Percent toNet Sales |   |  |   | Difference |  
|Gross salespremiums earned                            |  | $ | 5,183                             |   |  |                                  |  | $ | 7,573           |   |  |                    |   |  | $ | (2,390     | )
|Inter-segment eliminations                             |  |   | (1,975                            | ) |  |                                  |  |   | (1,549          | ) |  |                    |   |  |   | (426       | )
|                                                       | 
|Net salespremiums earned                              |  |   | 3,208                             |   |  | 100.0                             |  |   | 6,024           |   |  | 100.0               |   |  |   | (2,816     | )
|Cost of salesunderwriting expenses                    |  |   | 274                               |   |  | 8.5                               |  |   | 3,534           |   |  | 58.7                |   |  |   | (3,260     | )
|Selling and administrative expenses                    |  |   | 1,525                             |   |  | 47.6                              |  |   | 1,763           |   |  | 29.2                |   |  |   | (238       | )
|                                                       | 
|Operating income                                       |  | $ | 1,409                             |   |  | 43.9                              |  | $ | 727             |   |  | 12.1                |   |  | $ | 682        |  
|                                                       | 
|All Other  (dollars in thousands)                      |  |   |                                   |   |  |                                   |  |   |                 |   |  |                     |   |  |   |            |  
|                                                       |  |   | Thirteen Weeks EndedApril 1, 2006 |   |  | Thirteen Weeks EndedApril 2, 2005 |  |   |                 |   | 
|                                                       |  |   | Amounts in000s                   |   |  | Percent toNet Sales               |  |   | Amounts in000s |   |  | Percent toNet Sales |   |  |   | Difference |  
|Gross sales                                            |  | $ | 422                               |   |  |                                  |  | $ | 344             |   |  |                    |   |  | $ | 78         |  
|Inter-segment eliminations                             |  |   | (150                              | ) |  |                                  |  |   | (72             | ) |  |                    |   |  |   | (78        | )
|                                                       | 
|Net sales                                              |  |   | 272                               |   |  | 100.0                             |  |   | 272             |   |  | 100.0               |   |  |   |           |  
|Distribution, selling and administrative expenses      |  |   | 209                               |   |  | 76.8                              |  |   | 752             |   |  | 276.5               |   |  |   | (543       | )
|                                                       | 
|Operating income (loss)                                |  | $ | 63                                |   |  | 23.2                              |  | $ | (480            | ) |  | (176.5              | ) |  | $ | 543        |  
|                                                       | 



Net
sales.    Consolidated net sales increased $13.6 million to $710.1 million in the 2006 Period compared to $696.5 million for the 2005 Period.



| | · |  | Wholesale Distribution Segment:    Net Wholesale Distribution sales increased $16.4 million to $706.6 million in the 2006 Period compared to $690.2 million
for the 2005 Period. We continued to experience sales growth through new store openings and growth in sales of products that help our customers differentiate their stores from the competition. We also continued to experience a decline in sales of
center store dry grocery products as a result of continued competitive pressures from alternate format food stores (warehouse, supercenters, discount, drug, natural and organic, and convenience) that are influencing shoppers buying practices,
as well as certain customers buying more product directly from manufacturers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Continuing Customer Sales Growth



| | · |  | Sales increased by approximately $32.2 million due primarily to the distribution volume of existing customers expansion to new store locations, growth in our perishables product
offerings such as meat, produce, service deli and service bakery, and growth in our specialty foods subsidiary that have helped our customers differentiate themselves from their competition. As a result of these efforts, sales of perishables
products grew $15.7 million while our Market Centre sales grew $6.0 million over the 2005 Period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customer Changes



| | · |  | Sales to customers in the 2005 Period that discontinued business with us and began purchasing their products from competitors were $15.8 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:    Net sales, consisting principally of premium revenues, decreased $2.8 million to $3.2 million in the 2006 Period compared
to $6.0 million for the 2005 Period. Our Insurance Segment primarily sells workers compensation coverage in California. The drivers of the decline are as follows:
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rate Decline



A decline in policy rates caused a $0.8 million reduction in premium revenues. The rate decline was due to two key factors:



| | · |  | The California Legislature passed legislation in 2003 and 2004 to allow greater controls over medical costs related to workers compensation. These cost reductions have led to lower
policy premiums in the 2006 Period compared to the 2005 Period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Certain policyholders have shifted to higher deductible policies that shift some of the risk of loss from us to the policyholder. These higher deductible policies carry lower rates and lower
risk for us and contribute to the overall sales decline. These higher deductible policies plus emphasis on loss control can also result in lower costs for policyholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Policy Renewals



| | · |  | Net policy renewals declined 7.1% in the 2006 Period, representing a $2.0 million reduction in premium revenues. The decline in policy renewals resulted from increased competitive pressures
as new carriers entered the marketplace.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    Net revenues were consistent at $0.3 million for both the 2006 and 2005 Periods.
| | - |  | ----------------------------------------------------------------------------------------------



Cost of sales.    Consolidated cost of sales were $637.0 million for
the 2006 Period and $625.6 million for the 2005 Period and comprised 89.7% and 89.8% of consolidated net sales for the 2006 and 2005 Periods, respectively.



| | · |  | Wholesale Distribution Segment:    Cost of sales increased by $14.6 million to $636.7 million in the 2006 Period compared to $622.1 million in the 2005
Period. As a percentage of net wholesale sales, cost of sales was 90.1% for both the 2006 and 2005 Periods.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | A change in product and Member sales mix contributed to a 0.1% increase in cost of sales as a percent of net wholesale sales. Our growth was primarily in products that carry a higher cost of
sales as a percent of net sales compared to the 2005 Period product mix average. Our larger customers have driven the sales growth in new store openings. These customers typically pick up their orders from our facilities and their larger order sizes
allow for higher operational efficiencies. As a result, the margin on these customers is lower than average and increases the cost of sales as a percent of total sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | A change in vendor go-to-market strategies contributed to a 0.1% decrease in cost of sales as a percent of net wholesale sales. Our vendors and brokers are continually evaluating their
go-to-market strategies to effectively promote their products. Changes in their strategies could have a favorable or unfavorable impact on our financial performance. See Critical Accounting Policies and Estimates  Vendor Funds
discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | · |  | Insurance Segment:    Cost of sales, comprised primarily of underwriting expenses such as claim losses incurred and loss reserve expenses, decreased $3.2
million from $3.5 million to $0.3 million in the 2006 Period compared to the 2005 Period. During 2003 and 2004, California legislative reforms were passed aimed at reducing the rising cost of workers compensation expenses, primarily in the
cost of providing health care. We began experiencing the benefits of the California legislative reforms in the latter half of our 2005 fiscal year. These benefits have continued in the 2006 Period. The decline in cost of sales in the 2006 Period
resulted from lowering loss reserves at April 1, 2006 based on improving loss experience for earlier periods. The reduction in reserves at April 1, 2006 for losses and loss adjustment expenses was greater than the accrual of new reserves
plus paid losses and loss adjustment expenses for the 2006 Period. The cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, mortality rates, claims
history, demographics and industry trends. As a result, the amount of loss reserves and future expenses is significantly affected by these variables and may significantly change, depending on the cost of providing benefits and the results of further
legislative action.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Distribution, selling and administrative
expenses.    Consolidated distribution, selling and administrative expenses were $58.8 million in the 2006 Period compared to $59.6 million in the 2005 Period, and comprised 8.3% and 8.6% of net sales for the 2006 and
2005 Periods, respectively.



| | · |  | Wholesale Distribution Segment:    Distribution, selling and administrative expenses were $57.1 million in the 2006 Period compared to $57.0 million in the
2005 Period, and comprised 8.1% and 8.3% of net wholesale sales for the 2006 and 2005 Periods, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The factors contributing to the 0.2% decrease in expenses as a percent of net wholesale sales are as follows:



| | · |  | Sales Leveraging on Expenses:    General expenses increased $1.0 million to support the sales increase, but resulted in a 0.1% decline as a percent of net wholesale
sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Workers Compensation Expense:We are self-insured up to $300,000 per incident with a stop loss coverage policy over that amount. Loss accruals up to the
stop loss coverage are made based on actuarially developed loss estimates. Our workers compensation expenses declined by $1.5 million, or 0.2% as a percent of net wholesale sales, primarily due to the positive impact of the California
legislative reforms discussed above. Workers compensation expenses have also been reduced due to management actions, including the implementation of safety programs and reduction of corporate risk exposure via the use of higher deductible
policies. Future expenses may significantly change depending on the cost of providing health care and the results of further legislative action.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Depreciation and Amortization Expense:    Expenses related to depreciation and amortization declined $1.2 million or 0.2% as a percent of net wholesale sales. In
September 1999, we completed a merger (the Merger) with United Grocers, Inc. (United), a grocery cooperative headquartered in Milwaukie, Oregon. Following the Merger, our capital and information technology requirements
temporarily increased. Over the past three years, our need for new capital and information technology declined from the post-Merger level. The reduction in expense is related to many of those Merger-related activities becoming fully depreciated and
amortized. We expect this reduction to continue only through the remainder of this fiscal year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Benefits and Professional Services:During the period, we incurred cost increases of $1.4 million, or 0.2% as a percent of net wholesale sales.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Transportation Cost Increases:    During the period, costs related to fuel and common carrier activities increased $0.4 million, or 0.1% as a percent of net
wholesale sales. The fuel cost increases were recovered through fuel surcharges reported as a reduction in cost of sales.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:Distribution, selling and administrative expenses for the Insurance segment were comparable at $1.5 million for the 2006 Period
compared to $1.8 million for the 2005 Period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    Distribution, selling and administrative expenses for our All Other business activities for the 2006 Period were $0.2 million compared to $0.8
million for the 2005 Period. During the 2005 Period, we incurred higher lease reserves on properties associated with our variable interest entity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

Interest.Interest expense was $3.5 million in the 2006 Period compared to $3.7 million in the
2005 Period, or 0.5% as a percent of consolidated net sales for both the 2006 Period and the 2005 Period. Factors contributing to the decrease in interest expense are as follows:



|· |  | Interest expense on our primary debt instruments was $2.8 million and $3.0 million for the 2006 and 2005 Periods, respectively.
|- |  | -------------------------------------------------------------------------------------------------------------------------------



| | · |  | Weighted Average Borrowings:    Interest expense declined $0.3 million over the 2005 Period due to a reduction in our weighted average borrowings. Weighted average
borrowings were reduced by $20.5 million due to improved cash flow from operations, our Equity Enhancement Program (see Equity Enhancement Plan) and C&Ks repurchase on February 9, 2006 of 95,000 shares of Series A-2
Preferred Shares held by Unified for $9.8 million (see Note 7 of Notes to Consolidated Condensed Financial Statements).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Interest Rates:    Interest expense increased $0.1 million over the 2005 Period. Our effective borrowing rate for the combined primary debt, made up of the
revolving line of credit and senior secured notes, was 7.5% and 7.0% for the 2006 and 2005 Periods, respectively. Several offsetting factors contributed to the increase in interest rates. First, we signed an agreement on January 6, 2006 to
amend and restate our Senior Note Agreement (see Outstanding Debt and Other Financing Arrangements) reducing our effective interest rate. Second, we realized a reduction in our interest rate margin over the base borrowing rate on the
revolving line of credit due to achieving certain financial results. Third, with the overall market interest rate change, the base borrowing rate on the revolver increased over the 2005 Period, more than offsetting the reduction in margin on the
revolver and the improved rate on the Senior Notes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Borrowings on our revolving credit agreement are subject to market rate fluctuations. A 25 basis point change in the market rate of interest over the period would have resulted in a $30,000 increase or decrease in corresponding interest
expense.



|· |  | Interest expense on our secondary debt instruments was $0.7 million for both the 2006 and 2005 Periods.
|- |  | -------------------------------------------------------------------------------------------------------



Estimated patronage dividends.Estimated patronage dividends for the 2006 Period were $4.3 million, compared to
$3.5 million in the 2005 Period, an increase of 20.0%. Patronage dividends for the 2006 and 2005 Periods consisted of the patronage earnings from the Companys three patronage earnings divisions: the Southern California Dairy Division, the
Pacific Northwest Dairy Division and the Cooperative Division. For the 2006 and 2005 Periods, respectively, the Company had patronage earnings of $2.4 million and $2.8 million in the Southern California Dairy Division, $0.2 million and $0.1 million
in the Pacific Northwest Dairy Division and $1.7 million and $0.6 million in the Cooperative Division.



Income taxes.    The Companys effective income tax rate was 38.8% for the 2006 Period compared to 47.0% for the 2005 Period. The Company estimates that its effective tax rate will
be 34% for the remainder of fiscal 2006. The lower rate for the 2006 Period is due to provision-to-return differences and fluctuations in permanent items.



TWENTY-SIX WEEK PERIOD ENDED APRIL 1, 2006 (2006 PERIOD) COMPARED TO THE TWENTY-SIX WEEK PERIOD ENDED APRIL 2, 2005 (2005 PERIOD)



Overview of the 2006 Period.The Companys consolidated
operating income improved by $2.2 million to $30.9 million in the 2006 Period compared to $28.8 million in the 2005 Period. The operating income for the Companys Insurance segment and All Other category improved over the 2005 Period, but was
offset in part by a decline in the Wholesale Distribution segment.



| | · |  | Wholesale Distribution Segment:The Wholesale Distribution segment realized an overall net decrease in operating income of $0.4 million to $26.7 million
in the 2006 Period compared to $27.1 million in the 2005 Period. The decrease in operating income was due to a reduction in margin partially offset by continued benefits from increased efficiencies in our operations. We have also benefited from cost
reductions in workers compensation expense due to management actions (implementing safety programs and reducing corporate risk exposure via the use of higher deductible policies) and recent legislative changes. See additional discussion under
Net sales  Wholesale Distribution Segment below.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:    Operating income improved $2.4 million in the Companys Insurance segment to $4.5 million in the 2006
Period compared to $2.1 million in the 2005 Period. Our workers compensation claims development continued to improve during the 2006 Period. The improvement is attributable to
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19



---

##### Table of Contents

| | several factors, including the positive impact on claims development resulting from legislative reforms passed by Californias legislature. These reforms have
helped to reduce the cost of claims, particularly with respect to medical costs. Continued participation of our customers in higher deductible policies, which can be less costly for them and reduce Unifieds portion of its claims loss exposure,
has also contributed to the improvement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:All Other business activities primarily consist of the Companys finance subsidiary and the consolidation of a variable interest entity as
discussed in Note 2 of the Notes to Consolidated Condensed Financial Statements in Item 1. Operating income improved $0.2 million to a loss of $0.3 million in the 2006 Period compared to a loss of $0.5 million in the 2005 Period. The loss of
$0.3 million for the 2006 period was due to lease expenses associated with the Companys variable interest entity of $0.6 million partially offset by income of $0.3 million in the Companys finance subsidiary.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following tables summarize the performance of each business segment for the 2006 and 2005 Periods.



|                                                       |  |   |                                     |   |  |                     |                                     |  |   |                 |   |  |                     |   |  |   |            |  
|------------------------------------------------------ |  | - | ----------------------------------- | - |  | ------------------- | ----------------------------------- |  | - | --------------- | - |  | ------------------- | - |  | - | ---------- | -
|Wholesale Distribution Segment  (dollars in thousands) |  |   |                                     |   |  |                     |                                     |  |   |                 |   |  |                     |   |  |   |            |  
|                                                       |  |   | Twenty-Six WeeksEnded April 1, 2006 |   |  |                     | Twenty-Six WeeksEnded April 2, 2005 |  |   |                 |   | 
|                                                       |  |   | Amounts in000s                     |   |  | Percent toNet Sales |                                     |  |   | Amounts in000s |   |  | Percent toNet Sales |   |  |   | Difference |  
|Gross sales                                            |  | $ | 1,452,813                           |   |  |                    |                                     |  | $ | 1,413,396       |   |  |                    |   |  | $ | 39,417     |  
|Inter-segment eliminations                             |  |   |                                    |   |  |                    |                                     |  |   |                |   |  |                    |   |  |   |           |  
|                                                       | 
|Net sales                                              |  |   | 1,452,813                           |   |  | 100.0               |                                     |  |   | 1,413,396       |   |  | 100.0               |   |  |   | 39,417     |  
|Cost of sales                                          |  |   | 1,311,493                           |   |  | 90.3                |                                     |  |   | 1,268,923       |   |  | 89.8                |   |  |   | 42,570     |  
|Distribution, selling and administrative expenses      |  |   | 114,622                             |   |  | 7.9                 |                                     |  |   | 117,345         |   |  | 8.3                 |   |  |   | (2,723     | )
|                                                       | 
|Operating income                                       |  | $ | 26,698                              |   |  | 1.8                 |                                     |  | $ | 27,128          |   |  | 1.9                 |   |  | $ | (430       | )
|                                                       | 
|Insurance Segment  (dollars in thousands)              |  |   |                                     |   |  |                     |                                     |  |   |                 |   |  |                     |   |  |   |            |  
|                                                       |  |   | Twenty-Six WeeksEnded April 1, 2006 |   |  |                     | Twenty-Six WeeksEnded April 2, 2005 |  |   |                 |   | 
|                                                       |  |   | Amounts in000s                     |   |  | Percent toNet Sales |                                     |  |   | Amounts in000s |   |  | Percent toNet Sales |   |  |   | Difference |  
|Gross salespremiums earned                            |  | $ | 11,485                              |   |  |                    |                                     |  | $ | 15,874          |   |  |                    |   |  | $ | (4,389     | )
|Inter-segment eliminations                             |  |   | (4,001                              | ) |  |                    |                                     |  |   | (3,615          | ) |  |                    |   |  |   | (386       | )
|                                                       | 
|Net salespremiums earned                              |  |   | 7,484                               |   |  | 100.0               |                                     |  |   | 12,259          |   |  | 100.0               |   |  |   | (4,775     | )
|Cost of salesunderwriting expenses                    |  |   | (157                                | ) |  | (2.1                | )                                   |  |   | 6,576           |   |  | 53.6                |   |  |   | (6,733     | )
|Selling and administrative expenses                    |  |   | 3,122                               |   |  | 41.7                |                                     |  |   | 3,536           |   |  | 28.9                |   |  |   | (414       | )
|                                                       | 
|Operating income                                       |  | $ | 4,519                               |   |  | 60.4                |                                     |  | $ | 2,147           |   |  | 17.5                |   |  | $ | 2,372      |  
|                                                       | 
|All Other  (dollars in thousands)                      |  |   |                                     |   |  |                     |                                     |  |   |                 |   |  |                     |   |  |   |            |  
|                                                       |  |   | Twenty-Six WeeksEnded April 1, 2006 |   |  |                     | Twenty-Six WeeksEnded April 2, 2005 |  |   |                 |   | 
|                                                       |  |   | Amounts in000s                     |   |  | Percent toNet Sales |                                     |  |   | Amounts in000s |   |  | Percent toNet Sales |   |  |   | Difference |  
|Gross sales                                            |  | $ | 837                                 |   |  |                    |                                     |  | $ | 686             |   |  |                    |   |  | $ | 151        |  
|Inter-segment eliminations                             |  |   | (292                                | ) |  |                    |                                     |  |   | (175            | ) |  |                    |   |  |   | (117       | )
|                                                       | 
|Net sales                                              |  |   | 545                                 |   |  | 100.0               |                                     |  |   | 511             |   |  | 100.0               |   |  |   | 34         |  
|Distribution, selling and administrative expenses      |  |   | 829                                 |   |  | 152.1               |                                     |  |   | 1,032           |   |  | 202.0               |   |  |   | (203       | )
|                                                       | 
|Operating (loss) income                                |  | $ | (284                                | ) |  | (52.1               | )                                   |  | $ | (521            | ) |  | (102.0              | ) |  | $ | 237        |  
|                                                       | 



20



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##### Table of Contents

Net sales.Consolidated net sales increased $34.7 million to $1.461 billion in the 2006 Period
compared to $1.426 billion in the 2005 Period.



| | · |  | Wholesale Distribution Segment:Net Wholesale Distribution sales increased $39.4 million to $1.453 billion in the 2006 Period compared to $1.413 billion
for the 2005 Period. We continued to experience sales growth through new store openings and growth in sales of products that help our customers differentiate their stores from the competition. We also continued to experience a decline in sales of
center store dry grocery products as a result of continued competitive pressures from alternate format food stores (warehouse, supercenters, discount, drug, natural and organic, and convenience) that are influencing shoppers buying practices,
as well as certain customers buying more product directly from manufacturers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Continuing Customer Sales Growth



| | · |  | Sales increased by approximately $71.5 million due primarily to the distribution volume of existing customers expansion to new store locations, growth in our perishables product
offerings such as meat, produce, service deli and service bakery, and growth in our specialty foods subsidiary that have helped our customers differentiate themselves from their competition. As a result of these efforts, sales of perishables
products grew $33.4 million while our Market Centre sales grew $12.4 million over the 2005 Period.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customer Changes



| | · |  | Sales to customers in the 2005 Period that discontinued business with us and began purchasing their products from competitors were $32.1 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:    Net sales, consisting principally of premium revenues, decreased $4.8 million to $7.5 million in the 2006 Period
compared to $12.3 million for the 2005 Period. Our Insurance Segment primarily sells workers compensation coverage in California. The drivers of the decline are as follows:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rate Decline



A decline in policy rates caused a $2.0 million reduction in premium revenues. The
rate decline was due to two key factors:



| | · |  | The California Legislature passed legislation in 2003 and 2004 to allow greater controls over medical costs related to workers compensation. These cost reductions have led to lower
policy premiums in the 2006 Period compared to the 2005 Period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Certain policyholders have shifted to higher deductible policies that shift some of the risk of loss from us to the policyholder. These higher deductible policies carry lower rates and lower
risk for us and contribute to the overall sales decline. These higher deductible policies plus emphasis on loss control can also result in lower costs for policyholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Policy Renewals



| | · |  | Net policy renewals declined 6.7% in the 2006 Period, representing a $2.8 million reduction in premium revenues. The decline in policy renewals resulted from increased competitive pressures
as new carriers entered the marketplace.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    Net sales were $0.5 million for both the 2006 and 2005 Periods.
| | - |  | -----------------------------------------------------------------------------



Cost of sales.Consolidated cost of sales were $1.311 billion for the 2006 Period compared to $1.275 billion for
the 2005 Period and comprised 89.8% and 89.4% of consolidated net sales for the 2006 and 2005 Periods, respectively.



| | · |  | Wholesale Distribution Segment:    Cost of sales increased by $42.6 million to $1.311 billion in the 2006 Period compared to $1.269 billion in the 2005
Period. As a percentage of net wholesale sales, cost of sales was 90.3% and 89.8% for the 2006 and 2005 Periods, respectively. Several factors contributed to the 0.5% increase in cost of sales as a percentage of net wholesale sales.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

| | · |  | A change in product and Member sales mix contributed to a 0.4% increase in cost of sales as a percent of net wholesale sales. Our growth was primarily in products that carry a higher cost of
sales as a percent of net sales compared to the 2005 Period product mix average. Our larger customers have driven the sales growth through new store openings. These customers typically pick up their orders from our facilities and their larger order
sizes allow for higher operational efficiencies. As a result, the margin on these customers is lower than average and increases the cost of sales as a percent of total sales.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | A change in vendor go-to-market strategies contributed to a 0.1% increase in cost of sales as a percent of net wholesale sales. Our vendors and brokers are continually evaluating their
go-to-market strategies to effectively promote their products. Changes in their strategies could have a favorable or unfavorable impact on our financial performance. See Critical Accounting Policies and Estimates  Vendor Funds
discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:Cost of sales, comprised primarily of underwriting expenses such as claim losses incurred and loss reserve expenses, decreased $6.7
million from $6.6 million to a $0.1 million credit in the 2006 Period compared to the 2005 Period. During 2003 and 2004, California legislative reforms were passed aimed at reducing the rising cost of workers compensation expenses, primarily
in the cost of providing health care. We began experiencing the benefits of the California legislative reforms in the latter half of our 2005 fiscal year. These benefits have continued in the 2006 Period. The $0.1 million credit in cost of sales in
the 2006 Period resulted from lowering loss reserves at April 1, 2006 based on improving loss experience for earlier periods. The reduction in reserves at April 1, 2006 for losses and loss adjustment expenses was greater than the accrual
of new reserves plus paid losses and loss adjustment expenses for the 2006 Period. The cost of insurance and the sufficiency of loss reserves are also impacted by actuarial estimates based on a detailed analysis of health care cost trends, mortality
rates, claims history, demographics and industry trends. As a result, the amount of loss reserves and future expenses is significantly affected by these variables and may significantly change, depending on the cost of providing benefits and the
results of further legislative action.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Distribution, selling and
administrative expenses.Consolidated distribution, selling and administrative expenses were $118.6 million in the 2006 Period compared to $121.9 million in the 2005 Period, and comprised 8.1% and 8.6% of net sales for
the 2006 Period and the 2005 Period, respectively.



| | · |  | Wholesale Distribution Segment:Distribution, selling and administrative expenses were $114.6 million in the 2006 Period compared to $117.3 million in the
2005 Period, and comprised 7.9% and 8.3% of net Wholesale Distribution sales for the 2006 Period and the 2005 Period, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The factors contributing to the 0.4% decrease in cost as a percent of net wholesale sales are as follows:



| | · |  | Sales Leveraging on Expenses:    General expenses decreased $1.0 million, or 0.2% as a percent of net wholesale sales.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| | · |  | Workers Compensation Expense:We are self-insured up to $300,000 per incident with a stop loss coverage policy over that amount. Loss accruals up to the
stop loss coverage are made based on actuarially developed loss estimates. Our workers compensation expenses declined by $2.8 million, or 0.2% as a percent of net wholesale sales, primarily due to the positive impact of the California
legislative reforms discussed above. Workers compensation expenses have also been reduced due to management actions, including the implementation of safety programs and reduction of corporate risk exposure via the use of higher deductible
policies. Future expenses may significantly change depending on the cost of providing health care and the results of further legislative action.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Depreciation and Amortization Expense:    Expenses related to depreciation and amortization declined $2.6 million or 0.2% as a percent of net wholesale sales. In
September 1999, we completed the Merger with United, a grocery cooperative headquartered in Milwaukie, Oregon. Following the Merger, our capital and information technology requirements temporarily increased. Over the past three years, our need for
new capital and information technology declined from the post-Merger level. The reduction in expense is related to many of those Merger-related activities becoming fully depreciated and amortized. We expect this reduction to continue only through
the remainder of this fiscal year.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · |  | Allowance for Doubtful Accounts and Lease Reserves:    We establish reserves for uncollectible accounts receivable and various properties and retail stores
that are not currently utilized for operations. In the 2006 Period, the required reserves declined $0.6 million, or 0.1% as a percent of net wholesale sales.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Benefits and Professional Services:    During the period, we incurred cost increases of $2.8 million, or 0.2% as a percent of net wholesale sales.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Transportation Cost Increases:    During the period, costs related to fuel and common carrier activities increased $1.5 million, or 0.1% as a percent of net
wholesale sales. The fuel cost increases were recovered through fuel surcharges reported as a reduction in cost of sales.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Insurance Segment:Distribution, selling and administrative expenses for the Insurance segment were $3.1 million for the 2006 Period and $3.5 million for
the 2005 Period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All Other:    Distribution, selling and administrative expenses for the Companys All Other business activities for the 2006 Period were $0.8 million
compared to $1.0 million for the 2005 Period. During the 2005 Period, we incurred higher lease reserves on properties associated with our variable interest entity.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Interest.Interest expense was $7.5 million in the 2006 Period compared to $7.6 million in the 2005 Period and
comprised 0.5% of consolidated net sales for both the 2006 and the 2005 Periods.



|· |  | Interest expense on the Companys primary debt instruments was $6.0 million for both the 2006 and the 2005 Periods. A reduction in weighted average borrowings was offset by an increase
in rates on the revolving credit facility.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Weighted Average Borrowings:    Interest expense declined $0.6 million over the 2005 Period due to a reduction in our weighted average borrowings. Weighted average
borrowings were reduced by $21.4 million due to improved cash flow from operations, our Equity Enhancement Program (see Equity Enhancement Plan) and C&Ks repurchase on February 9, 2006 of 95,000 shares of Series A-2
Preferred Shares held by Unified for $9.8 million (see Note 7 of Notes to Consolidated Condensed Financial Statements).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Interest Rates:    Interest expense increased $0.6 million over the 2005 Period. Our effective borrowing rate for the combined primary debt, made up of the revolving line
of credit and senior secured notes, was 7.6% and 6.6% for the 2006 and 2005 Periods, respectively. Several offsetting factors contributed to the increase in interest rates. First, we signed an agreement on January 6, 2006 to amend and restate
our Senior Note Agreement (see Outstanding Debt and Other Financing Arrangements), reducing our effective interest rate. Second, we realized a reduction in our interest rate margin over the base borrowing rate on the revolving line of
credit due to achieving certain financial results. Third, consistent with the overall market interest rate change, the base borrowing rate on the revolver increased over the 2005 Period, offsetting the reduction in margin on the revolver and the
improved rate on the Senior Notes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Borrowings on our
revolving credit agreement are subject to market rate fluctuations. A 25 basis point change in the market rate of interest over the period would have resulted in a $0.1 million increase or decrease in corresponding interest expense.



|· |  | Changes in secondary debt instruments resulted in a $0.1 million decrease in expense to $1.5 million in the 2006 Period compared to $1.6 million in the 2005 Period.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Estimated patronage dividends.Estimated patronage dividends
for the 2006 Period were $9.4 million, compared to $11.7 million in the 2005 Period, a decrease of 20.0%. Patronage dividends for the 2006 Period consisted of the patronage earnings from the Companys three patronage earnings divisions: the
Southern California Dairy Division, the Pacific Northwest Dairy Division and the Cooperative Division. For the 2006 and 2005 Periods, respectively, the Company had patronage earnings of $5.1 million and $5.3 million in the Southern California Dairy
Division, $0.3 million and $0.2 million in the Pacific Northwest Dairy Division and $4.0 million and $6.2 million in the Cooperative Division.



Income taxes.    The Companys effective income tax rate was 30.4% for the 2006 Period compared to 36.4% for the 2005 Period. The Company
estimates that its effective tax rate will be 34% for the remainder of fiscal 2006. The lower rate for the 2006 Period is due to provision-to-return differences and fluctuation in permanent items.



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LIQUIDITY AND CAPITAL RESOURCES



The Company finances its capital needs through a combination of internal and external sources. These sources include cash from operations, Member investments, bank borrowings,
various types of long-term debt and lease financing. The Company believes that the combination of cash flows from operations, current cash balances, its Equity Enhancement Plan described below, and available lines of credit, will be sufficient to
service its debt and to meet its anticipated needs for working capital and capital expenditures through at least fiscal 2006.



CASH FLOW



The Company continued to generate positive cash flow from operations, which was used for investing and financing activities during the twenty-six week 2006 Period to reduce long-term debt, provide financing to Members, invest in the
Companys infrastructure, reinvest proceeds from maturing investments and redeem Members capital shares.



Net cash, consisting of cash and cash equivalents, decreased by $3.5 million to $13.9 million as a result of this activity for the twenty-six week 2006 Period compared to $17.4
million as of the fiscal year ended October 1, 2005.



The following table summarizes
the impact of operating, investing and financing activities on the Companys cash flows for the twenty-six week 2006 and 2005 Periods:



|                                                       |  |      |         |   |      |   |         |            |  |   |        |  
|------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---------- |  | - | ------ | -
|(dollars in thousands)                                 |  |      |         |   |      |   |         |            | 
|Summary of Net Increase (Decrease) in Total Cash Flows |  | 2006 |         |   | 2005 |   |         | Difference | 
|Cash provided by operating activities                  |  | $    | 23,919  |   |      | $ | 28,222  |            |  | $ | (4,303 | )
|Cash utilized by investing activities                  |  |      | (13,021 | ) |      |   | (10,059 | )          |  |   | (2,962 | )
|Cash utilized by financing activities                  |  |      | (14,402 | ) |      |   | (25,966 | )          |  |   | 11,564 |  
|                                                       | 
|Total (decrease) increase in cash flows                |  | $    | (3,504  | ) |      | $ | (7,803  | )          |  | $ | 4,299  |  
|                                                       | 



Net cash used by operating, investing and
financing activities decreased $4.3 million to $3.5 million for the 2006 Period compared to $7.8 million for the 2005 Period. The improvement in net cash for the 2006 Period occurred primarily as a result of reduced cash used by financing activities
of $11.6 million due to lower payments on long term debt as the Company continued to optimize its borrowing levels. This improvement was partially offset by decreased cash from operating activities of $4.3 million (due primarily to reduced accounts
payable and accrued liabilities, including accrued workers compensation, insurance and tax liabilities) and increased cash used by investing activities of $3.0 million. Working capital was $75.3 million and $75.4 million, respectively, and the
current ratio was 1.3 at April 1, 2006 and October 1, 2005.



Operating
Activities:    Net cash provided by operating activities decreased by $4.3 million to $23.9 million for the 2006 Period compared to $28.2 million for the 2005 Period. The decline in cash provided by operating activities
compared to the 2005 Period was attributable primarily to the impact of working capital management initiatives implemented in fiscal 2003 that continued to benefit the 2005 Period, but are reaching desired levels in the 2006 Period. Net changes in
accounts receivable, inventory, prepaid expenses and current liabilities utilized $6.0 million and provided $7.8 million in cash for the 2006 and 2005 Periods, respectively, resulting in a $13.8 million reduction in cash provided by operating
activities between the periods. This $13.8 million reduction was partially offset by cash generated from a net sale of trading securities of $8.2 million by its insurance subsidiaries.



Investing Activities:    Net cash used in investing activities increased by $3.0 million to $13.0 million for the
2006 Period compared to $10.0 million utilized in the 2005 Period. The increase in cash used for investing activities during the 2006 Period as compared to the 2005 Period was due to increased capital expenditures for a building renovation project
and purchases of warehouse and computer equipment. Amounts used to fund notes receivable decreased $1.6 million, reflecting normal fluctuations in loan activity to Members for their inventory and equipment financing, which was offset by increases in
other assets of $0.4 million as well as increases in net investments of $1.2 million, consisting of the purchase and sale of securities to replace maturing investments in the portfolios of the Companys insurance subsidiaries and C&Ks
repurchase of Series A-2 Preferred Shares held by Unified (see Note 7 of Notes to Consolidated Condensed Financial Statements). Spending on investing activities is expected to be funded by existing cash balances, cash generated from operations or
additional borrowings.



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Financing Activities:    Net cash utilized by financing activities was approximately $14.4
million for the 2006 Period compared to $26.0 million for the 2005 Period. The net decrease of $11.6 million in cash used by financing activities for the 2006 Period as compared to the 2005 Period was due primarily to a reduction in debt repayment
resulting from lower borrowings that decreased cash use by $14.0 million as the Company continued to optimize its borrowing levels. This was offset by decreased cash provided by Member deposits (both excess and required) and estimated patronage
dividends of $3.1 million between the periods, resulting from decreased patronage earnings of $0.5 million and reduced required deposits of $2.6 million for Members that participate in the Reduced Class B Investment Requirement program, which was
effective March 31, 2005 (see Member Investments and Patronage Dividends discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information). Cash
used by financing activities is expected to be funded by the Companys continuing operating cash flow and the positive impact of the Equity Enhancement Plan to meet operating and capital spending requirements.



Equity Enhancement Plan



In fiscal 2002, the Company initiated an equity enhancement plan designed to build equity in the Company for future investment in the business and
other infrastructure improvements. See Equity Enhancement Plan discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.



Credit Facilities



The Company has a $225.0 million revolving credit agreement that expires on December 5, 2007 (see Contractual Obligations and Commercial
Commitments discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.). This facility, combined with the Companys reduction in its borrowing
levels under the facility to $45.6 million at April 1, 2006, increases the availability of capital accessible by the Company. In addition, on January 6, 2006, the Company amended and restated its Senior Note Agreement with John Hancock
Life Insurance Company (see Outstanding Debt and Other Financing Arrangements). This amended and restated Senior Note Agreement provided an additional $6.2 million in funds to the Company and extended the maturity date to January 1,
2016 from April 1, 2008 and October 1, 2009 on $86.0 million of the notes.



Off-Balance Sheet Arrangements



As of the date of this report, with the
exception of the transaction disclosed in Note 2 of Notes to Consolidated Condensed Financial Statements, the Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.



CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS



There have been no material changes in the Companys contractual obligations and commercial
commitments outside the ordinary course of the Companys business during the twenty-six week period ending April 1, 2006. See Contractual Obligations and Commercial Commitments discussed in Part II, Item 7 of the
Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.



OUTSTANDING DEBT AND OTHER FINANCING ARRANGEMENTS



Other
than as discussed below, there have been no material changes in the Companys outstanding debt and other financing arrangements outside the ordinary course of the Companys business during the interim period ending April 1, 2006. See
Outstanding Debt and Other Financing Arrangements discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.



The Company had a total of $92.5 million outstanding in senior secured notes to certain insurance
companies and pension funds (referred to collectively as John Hancock Life Insurance Company, or Hancock) under a note purchase agreement dated September 29, 1999 (as amended, the Senior Note Agreement) at
October 1, 2005, and $96.8 million outstanding at April 1, 2006 under the Senior Note Agreement as amended and restated effective January 6, 2006.



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On January 6, 2006 (the effective date), the Company entered into an agreement (the Amendment) with
Hancock which amended and restated its Senior Note Agreement ($92.5 million at October 1, 2005) to $96.8 million as of the effective date of the Amendment. The Amendment extended the maturity date to January 1, 2016 from April 1, 2008
and October 1, 2009 on $86.0 million of the notes. The Amendment also decreased interest rates that ranged from 7.72% to 8.71% on $86.0 million of notes to a range of 6.421% to 7.157%.



The Amendment calls for interest only payments for the first five years of the term, and then starting
on the 61st payment, principal plus interest on the $86.0 million of notes. At the maturity date, a balloon payment of $66.8 million is due. In addition, $10.8 million of notes will mature on April 1, 2008 (monthly payments of principal plus
interest at 7.72%) and October 1, 2009 (monthly payments of interest only at 8.71%), with balloon payments of $4.4 million and $4.5 million, respectively.



The notes continue to be secured by certain of the Companys personal and real property and contain customary covenants, default provisions (including acceleration of the
debt in the event of an uncured default), and prepayment penalties similar to those included in the original note purchase agreement.



MEMBER INVESTMENTS AND PATRONAGE DIVIDENDS



Members are required to meet specific Member capitalization requirements, which include capital stock ownership and may include required cash deposits (Required
Deposits). Members may also maintain deposits with Unified in excess of such Required Deposit amounts (Excess Deposits). See Member Investments and Patronage Dividends discussed in Part II, Item 7 of the
Companys Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.



Members Required Deposits are contractually subordinated and subject to the prior payment in full of certain senior indebtedness of the Company. Unifieds obligation to repay Members Required Deposit accounts
on termination of Member status (once the Members obligations to Unified have been satisfied) is reported as a long-term liability on Unifieds consolidated condensed balance sheets. Excess Deposits are not subordinated to Unifieds
other obligations and are reported as short-term liabilities on Unifieds consolidated condensed balance sheets. At April 1, 2006 and October 1, 2005, Unified had $10.5 and $10.4 million, respectively, in Members required
deposits and $18.6 and $13.4 million, respectively, in Members excess deposits and estimated patronage dividends (of which $12.3 and $10.0 million, respectively, represented Excess Deposits).



REDEMPTION OF CAPITAL STOCK



On October 19, 2005, the Board authorized the repurchase on October 25, 2005 of 1,950 shares of the Companys Class A Shares that
had been tendered and were pending redemption. The Company paid approximately $0.34 million to redeem the shares. On October 5, 2005 and October 21, 2005, the Company repurchased 129 and 196 shares, respectively, of the Companys
Class B Shares that had been tendered and were pending redemption. The Company paid approximately $0.06 million to redeem the shares. On December 14, 2005, the Board authorized the repurchase on December 30, 2005 of 1,600 shares of the
Companys Class A Shares and 23,130 shares of the Companys Class B Shares that had been tendered and were pending redemption. The Company paid approximately $0.31 million and $4.0 million, respectively, to redeem the shares.



On February 10, 2006, the Company authorized that 1,108 shares of the
Companys Class E Shares (in the amount of $0.1 million) be voided on March 10, 2006. Concurrently, 566 shares of the Companys Class B Shares were issued in the amount of $0.1 million.



See Redemption of Capital Stock discussed in Part II, Item 7 of the Companys
Annual Report on Form 10-K for the year ended October 1, 2005 for additional information.



PENSION AND POSTRETIREMENT BENEFIT PLANS



The Company sponsors a cash
balance plan (Cash Balance Plan). The Company funding policy is to make contributions to the Cash Balance Plan in amounts that are at least sufficient to meet the minimum funding requirements of applicable laws and regulations, but no
more than amounts deductible for federal income tax purposes. The Company also sponsors an executive salary protection plan (ESPP II) that provides supplemental



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post-termination retirement income based on each participants final salary and years of service as an officer of the Company. Funds are held in a rabbi trust for
the ESPP II consisting primarily of life insurance policies reported at cash surrender value.



The Company sponsors postretirement benefit plans that cover both non-union and union employees. These plans are not funded.



The Companys net periodic benefit cost for its combined pension and other postretirement benefits was approximately $5.6 million for the twenty-six week period ended
April 1, 2006 compared to $5.5 million for the twenty-six week period ended April 2, 2005.



Commencing with its quarterly contribution of $1.04 million made on April 14, 2006, the Company expects to make contributions of $1.04 million per quarter for the remainder of the 2006 plan year. At its discretion, the
Company may contribute in excess of these amounts. Additional contributions for the 2005 plan year, if any, will be due by September 15, 2006, while contributions for the 2006 plan year will be due by September 15, 2007. The Company
contributed $0.6 million to the ESPP II during the twenty-six weeks ended April 1, 2006 to fund projected benefit payments to participants for the 2006 plan year.



At April 1, 2006, the fair value of the Cash Balance Plan assets increased to $86.3 million from $73.2 million at October 1, 2005.



RISK FACTORS



The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the
Company or that the Company currently deems immaterial also may impair the Companys business operations. If any of the following risks occur, the Companys business, prospects, financial condition, operating results and cash flows could
be adversely affected in amounts that could be material.



Unifieds management
deals with many risks and uncertainties in the normal course of business. Readers should be aware that the occurrence of the risks, uncertainties and events described in the risk factors below and elsewhere in this Form 10-Q could have an adverse
effect on the Companys business, results of operations and financial position.



The markets in which we operate are highly competitive.    The wholesale food distribution and retail grocery industries are highly competitive and characterized by high volume and low profit margins. The
shifting of market share among competitors is typical of the wholesale food business as competitors attempt to increase sales in various markets. A significant portion of the Companys sales are made at prices based on the cost of products it
sells plus a markup. As a result, the Companys profit levels may be negatively impacted if it is forced to respond to competitive pressure by reducing prices.



The increased competition has caused the industry to undergo changes as participants seek to lower costs, further increasing pressure on the
industrys already low profit margins. In addition to price competition, food wholesalers also compete with regard to quality, variety and availability of products offered, strength of private label brands offered, schedules and reliability of
deliveries and the range and quality of services provided.



Continued consolidation in
the industry, consolidation among the Companys suppliers, new entrants and trends toward vertical integration could create additional competitive pressures that reduce margins and adversely affect the Companys business, financial
condition and results of operations.



The Company may experience reduced sales if
Members lose market share.    The Companys customers face increasing competition at the retail distribution level with several large fully integrated chain store organizations, as well as alternative format food
stores including warehouse stores and supercenters. These supercenters have benefited from concentrated buying power and low-cost distribution technology, and have increasingly gained market share at the expense of traditional supermarket operators,
including some independent operators, many of whom are the Companys customers. The market share of such alternative format stores is expected to grow in the



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future, potentially resulting in a loss of sales volume for the Company. A loss of sales volume could potentially cause patronage dividends to be reduced and/or the
book value of the Companys shares to decrease, thereby reducing the value of the Members Class B Shares.



We will continue to be subject to risk of loss of member volume.    The Companys operating results are highly dependent upon either
maintaining or growing its distribution volume to its customers. The Companys top ten Member and non-member customers constituted approximately 41.2% of total sales for the twenty-six week period ended April 1, 2006. A significant loss in
membership or volume could adversely affect the Companys operating results. We will continue to be subject to the risks associated with consolidation within the grocery industry. When independent retailers are acquired by large chains with
self-distribution capacity, are driven from business by larger grocery chains, or become large enough to develop their own self-distribution system, we will lose distribution volume. Members may also select other wholesale providers. Reduced volume
is normally injurious to profitable operations since fixed costs must be spread over a lower sales volume.



The Company may experience reduced sales if Members purchase directly from suppliers.    Increased industry competitive pressure is causing some of the Companys Members that can qualify
to purchase directly from suppliers to increase their level of direct purchases from suppliers and expand their self-distribution activities. The Companys operating results could be adversely affected if a significant reduction in distribution
volume occurred in the future.



We are vulnerable to changes in general economic
conditions.    The Company is affected by certain economic factors that are beyond its control including inflation. An inflationary economic period could impact the Companys operating expenses in a variety of areas,
including, but not limited to, employee wages, benefits and workers compensation insurance, as well as energy and fuel costs. A significant portion of the Companys debt is at floating interest rates and an inflationary economic cycle
typically results in higher interest costs. The Company operates in an industry characterized by low margins within a highly competitive marketplace; therefore, passing on such cost increases to customers could be difficult. To the extent the
Company is unable to mitigate increasing costs, patronage dividends may be reduced and/or the book value of the Companys shares may decrease, thereby reducing the value of the Members Class B Shares.



Changes in the economic environment could adversely affect Unifieds customers ability to
meet certain obligations to the Company or leave the Company exposed for obligations the Company has guaranteed. Loans to Members, trade receivables and lease guarantees could be at risk in a sustained inflationary environment. In response to this
potential risk, the Company establishes reserves for notes receivable, trade receivables, and lease commitments for which the Company may be at risk for default. Under certain circumstances, the Company would be required to foreclose on assets
provided as collateral or assume payments for leased locations for which the Company has guaranteed payment. Although the Company believes its reserves to be adequate, the Companys operating results could be adversely affected in the event
that actual losses exceed available reserves.



The Company may on occasion hold
investments in the common and preferred stock of Members (see Note 7 of Notes to Consolidated Condensed Financial Statements). These investments are generally held at cost or the equity method and are periodically evaluated for impairment. As a
result, changes in the economic environment that adversely affect the business of these Members could result in the write-down of these investments. This risk is unique to a cooperative form of business in that investments are made to support
Members businesses, and those economic conditions that adversely affect the Members can also reduce the value of the Companys investment, and hence the book value of the underlying capital shares.



Litigation could lead to unexpected losses.    During the normal
course of carrying out its business, the Company may become involved in litigation. In the event that management determines that the probability of an adverse judgment in a pending litigation is likely and that the exposure can be reasonably
estimated, appropriate reserves are recorded at that time pursuant to Statement of Financial Accounting Standards (SFAS) No. 5 Accounting for Contingencies. Although the Company believes its reserves to be
adequate, the final outcome of any litigation could adversely affect operating results if the actual settlement amount exceeds established reserves and insurance coverage.



We are subject to environmental laws and regulations.    The Company owns and operates various facilities for the
manufacture, warehousing and distribution of products to its customers. Accordingly, the Company is subject to



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increasingly stringent federal, state and local laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals
or other releases of hazardous materials. In particular, under applicable environmental laws, the Company may be responsible for remediation of environmental conditions and may be subject to associated liabilities (including liabilities resulting
from lawsuits brought by private litigants) relating to its facilities and the land on which the Company facilities are situated, regardless of whether the Company leases or owns the facilities or land in question and regardless of whether such
environmental conditions were created by it or by a prior owner or tenant. The Company believes it is in compliance with all such laws and regulations and has established reserves for known and anticipated costs of remediation.



We are exposed to potential product liability claims.    The
packaging, marketing and distribution of food products purchased from others involve an inherent risk of product liability, product recall and adverse publicity. Such products may contain contaminants that may be inadvertently redistributed by the
Company. These contaminants may result in illness, injury or death if such contaminants are not eliminated. Accordingly, the Company maintains stringent quality standards on the products it purchases from suppliers, as well as products manufactured
by the Company itself. The Company generally seeks contractual indemnification and insurance coverage from parties supplying its products and rigorously tests its private brands and manufactured products to ensure the Companys quality
standards are met. In addition, the Company is insured for product liability claims and believes its coverage to be adequate. However, product liability claims in excess of available reserves and insurance coverage, as well as the negative publicity
surrounding any assertion that the Companys products caused illness or injury could have a material adverse effect on its reputation and on the Companys business, financial condition and results of operations.



Our insurance reserves may be inadequate if unexpected losses
occur.    The Companys insurance subsidiaries are regulated by the State of California and are subject to the rules and regulations promulgated by the appropriate regulatory agencies. In addition, the Company is
self insured for workers compensation up to $1,000,000 per incident and maintains appropriate reserves to cover anticipated payments. Insurance reserves are recorded based on estimates made by management and validated by third party actuaries
to ensure such estimates are within acceptable ranges. Actuarial estimates are based on detailed analyses of health care cost trends, mortality rates, claims history, demographics, industry trends and federal and state law. As a result, the amount
of reserve and related expense is significantly affected by the outcome of these studies. Although the Company believes its reserves to be adequate, significant and adverse changes in the experience of claims settlement, legislative changes and
other underlying assumptions could negatively impact operating results.



We may not
have adequate resources to fund our operations.    The Company relies primarily upon cash flow from its operations and Member investments to fund its operating activities. In the event that these sources of cash are not
sufficient to meet the Companys requirements, additional sources of cash are expected to be obtained from the Companys credit facilities to fund its daily operating activities. Our Revolving Credit Agreement, which expires on
December 5, 2007, requires compliance with certain financial covenants, including minimum tangible net worth, fixed charge coverage ratio and total funded debt to earnings before interest, taxes, depreciation, amortization and patronage
dividends (EBITDAP). While the Company is currently in compliance with all required covenants and expects to remain in compliance, this does not guarantee the Company will remain in compliance in future periods.



The Companys Revolving Credit Agreement permits advances of up to 85% of eligible accounts
receivable and up to 65% of eligible inventory up to a maximum of $225 million. As of April 1, 2006, the Company believes it has sufficient cash flow from operations and availability under the Revolving Credit Agreement to meet operating needs
and capital spending requirements through fiscal 2006. However, if access to operating cash or to the Revolving Credit Agreement becomes restricted, the Company may be compelled to seek alternate sources of cash. The Company cannot assure that
alternate sources will provide cash on terms favorable to the Company. Consequently, the inability to access alternate sources of cash on terms similar to its existing agreement could adversely affect the Companys operations.



The value of our benefit plan assets and liabilities is based on estimates and assumptions, which
may prove inaccurate.    The Companys employees participate in Company sponsored defined pension and postretirement benefit plans. Officers of the Company also participate in a Company sponsored ESPP II, which
provides additional



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post-termination retirement income based on each participants final salary and years of service as an officer of the Company. The postretirement plans provide
medical benefits for retired non-union employees, life insurance benefits for retired non-union employees for which active non-union employees are no longer eligible, and lump-sum payouts for unused sick days covering certain eligible union and
non-union employees. Liabilities for the postretirement plans are not funded. The Company accounts for these benefit plans in accordance with SFAS No. 87, Employers Accounting for Pensions, SFAS No. 106
Employers Accounting for Postretirement Benefits Other Than Pensions and SFAS No. 112 Employers Accounting for Postemployment Benefits, which require the Company to make actuarial assumptions
that are used to calculate the carrying value of the related assets, where applicable, and liabilities and the amount of expenses to be recorded in the Companys consolidated financial statements. Assumptions include the expected return on plan
assets, discount rates, health care cost trend rate, projected life expectancies of plan participants and anticipated salary increases. While we believe the underlying assumptions are appropriate, the carrying value of the related assets and
liabilities and the amount of expenses recorded in the consolidated financial statements could differ if other assumptions are used.



A system failure or breach of system or network security could delay or interrupt services to our customers or subject us to significant
liability.    Despite system redundancy, the implementation of security measures and the existence of a Disaster Recovery Plan for the Companys internal information systems, these systems are vulnerable to damage
from computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. It is possible that a system failure, accident or security breach could result in a material disruption to the
Companys business. In addition, substantial costs may be incurred to remedy the damages caused by these disruptions or security breaches. From time to time, the Company installs new or upgraded business management systems. To the extent that a
critical system fails or is not properly implemented and the failure cannot be corrected in a timely manner, the Company may experience disruptions to the business that could have a material adverse effect on the Companys results of
operations.



Our success depends on our retention of our executive officers, senior
management and our ability to hire and retain additional key personnel.    The Companys success depends on the skills, experience and performance of its executive officers, senior management and other key personnel.
The loss of service of one or more of its executive officers, senior management or other key employees could have a material adverse effect on the Companys business, prospects, financial condition, operation results and cash flows. The
Companys future success also depends on its continuing ability to attract and retain highly qualified technical, sales and managerial personnel. Competition for these personnel is intense, and there can be no assurance that the Company can
retain our key employees or that it can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future.



The successful operation of our business depends upon the supply and marketing relationships from other companies.    The Company depends upon
third parties for supply of products and raw materials. Any disruption in the services provided by any of these suppliers, or any failure by them to handle current or higher volumes of activity, could have a material adverse effect on the
Companys business, prospects, financial condition, operating results and cash flows.



The Company participates in various marketing and promotional programs to increase sales volume and reduce merchandise costs. Failure to continue these relationships on terms that are acceptable to Unified, or to obtain adequate marketing
relationships could have a material adverse effect on the Companys business, prospects, financial condition, operating results and cash flows.



Increased energy, diesel fuel and gasoline costs could reduce our profitability.    The Companys operations require and are dependent upon
the continued availability of substantial amounts of electricity, diesel fuel and gasoline to manufacture, store and transport products. The Companys trucking operations are extensive and diesel fuel storage capacity represents approximately
two weeks average usage. The prices of electricity, diesel fuel and gasoline fluctuate significantly over time. Given the competitive nature of the grocery industry, we may not be able to pass on increased costs of production, storage and
transportation to our customers. As a result, either a shortage or significant increase in the cost of electricity, diesel fuel or gasoline could disrupt distribution activities and negatively impact our business and results of operations.



Strike or work stoppage by our union employees could disrupt our
business.    Approximately 60% of our employees are covered by collective bargaining agreements, some of which are due to expire in fiscal 2010. The



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inability to negotiate acceptable contracts with the unions could result in a strike or work stoppage and increased operating costs resulting from higher wages or
benefits paid to union members or replacement workers. Such outcome could have a material negative impact on the Companys operations and financial results.



If we fail to maintain an effective system of internal controls, we may not be able to detect fraud or report our financial results accurately,
which could harm our business and we could be subject to regulatory scrutiny.    Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), Unified will be required, beginning in its fiscal
year 2007, to perform an evaluation of the Companys internal controls over financial reporting and have the Companys independent registered public accounting firm test and evaluate the design and operating effectiveness of such internal
controls and publicly attest to such evaluation. The Company has prepared an internal plan of action for compliance with the requirements of Section 404, which includes a timeline and scheduled activities, although as of the date of this filing
the Company has not yet completed its effectiveness evaluation. Although the Company believes its internal controls are operating effectively, the Company cannot guarantee that it will not have any material weaknesses. Compliance with the
requirements of Section 404 is expected to be expensive and time-consuming. If the Company fails to complete this evaluation in a timely manner, or if the Companys independent registered public accounting firm cannot timely attest to the
Companys evaluation, the Company could be subject to regulatory scrutiny and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their
implementation, could harm the Companys operating results or cause the Company to fail to meet its reporting obligations.



Members will be required to report as income any patronage dividends that we distribute in the form of qualified written notices of
allocation.    Members are required to consent to include in their gross income, in the year received, all cash as well as the stated dollar amount of all qualified written notices of allocation, including subordinated
patronage dividend certificates (Patronage Certificates) and the book value of Class B Shares distributed to them as part of the qualified written notices of allocation. Patronage Certificates and Class B Shares distributed as part of
the qualified written notices of allocation are also subject to state income and corporate franchise taxes in California and may be subject to these taxes in other states. The Member does not include a nonqualified written notice of allocation,
whether in Class B Shares, Class E Shares or Patronage Certificates, as income in the year of receipt and the Company is not entitled to an income tax deduction in the year of issuance. The Member will have ordinary taxable income and the Company
will have an income tax deduction when the stock is redeemed or the Patronage Certificate is paid in cash or property. The Companys Board will determine whether patronage dividends will be paid in the form of qualified written notices of
allocation or nonqualified written notices of allocation. For the fiscal years ended 2003, 2004 and 2005, the Companys Board determined that patronage dividends would be paid in the form of nonqualified written notices of allocation for the
Cooperative Division. Patronage dividends paid in the Dairy Divisions were paid in the form of qualified written notices of allocation.



Members are urged to consult their tax advisors with respect to the applicability of U.S. federal income, state or local tax rules on the ownership and disposition of Class A,
Class B and Class E Shares and the receipt of Patronage Certificates with respect to their own tax status.



A loss of our cooperative tax status could increase tax liability.    Subchapter T of the Internal Revenue Code sets forth rules for the tax treatment of cooperatives. As a cooperative, the
Company distributes deductible patronage dividends, which offset its entire patronage income. However, we are taxed as a corporation on the remainder of our earnings from our Member business (those earnings which we have not deemed to be patronage
income) and on earnings from nonmember business. If the Company were not entitled to be taxed as a cooperative under Subchapter T, its revenues would be taxed when earned by the Company and the Members would be taxed when dividends were distributed.
The Internal Revenue Service can challenge the tax status of cooperatives. The Internal Revenue Service has not challenged the Companys tax status and the Company would vigorously defend any such challenge. If we were not entitled to be taxed
as a cooperative, taxation at both the Company and the Member level would have a material, adverse impact on the Company.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



The preparation of the Companys consolidated condensed financial statements in conformity with accounting principles generally accepted in the United States of America
requires the Company to make estimates, assumptions and judgments that affect the amount of assets and liabilities reported in the consolidated



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condensed financial statements, the disclosure of contingent assets and liabilities as of the date of the consolidated condensed financial statements and reported
amounts of revenues and expenses during the year. The Company believes its estimates and assumptions are reasonable; however, future results could differ from those estimates under different assumptions or conditions.



The Companys discussion and analysis of its financial condition and results of operations is
based upon its consolidated condensed financial statements. On an ongoing basis, we evaluate our estimates, including those related to allowances for doubtful accounts, lease loss reserves, inventories, investments, goodwill and intangible assets,
long-lived assets, income taxes, insurance reserves, pension and postretirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable
under the circumstances. Based on our ongoing review, we make adjustments we consider appropriate under the facts and circumstances. We have discussed the development, selection and disclosure of these estimates with the Audit Committee. The
accompanying consolidated condensed financial statements are prepared using the same critical accounting policies and estimates discussed in Part II, Item 7 of the Companys Annual Report on Form 10-K for the fiscal year ended
October 1, 2005.



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS



Refer to Note 8 to Notes to Consolidated Condensed Financial Statements in Part I, Item 1 of this
quarterly report on Form 10-Q for managements discussion of recently issued accounting pronouncements and their expected impact, if any, on the Companys consolidated condensed financial statements.



AVAILABILITY OF SEC FILINGS



Unified makes available, free of charge, through its website (www.uwgrocers.com) its Forms 10-K, 10-Q and 8-K, as well as its registration and proxy
statements, as soon as reasonably practicable after those reports are electronically filed with the Securities and Exchange Commission (the SEC). A copy of any of the reports filed with the SEC can be obtained from the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. A copy may also be obtained by calling the SEC at 1-800-SEC-0330. All reports filed electronically with the SEC are available on the SECs web site at http://www.sec.gov.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



The following discussion of the market risks the Company faces contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual
results could differ materially from those discussed in the forward-looking statements.



Unified is subject to interest rate changes on its notes payable under the Companys credit agreements that may affect the fair value of the notes payable, as well as cash flow and earnings. Based on the notes payable outstanding at
April 1, 2006 and the current market condition, a one percent increase in the applicable interest rates would decrease the Companys annual cash flow and pretax earnings by approximately $0.5 million. Conversely, a one percent decrease in
the applicable interest rates would increase annual cash flow and pretax earnings by $0.5 million.



The Companys investments in convertible bonds are classified as trading securities. As such, the Company is subject to market risk associated with fluctuations in interest rates and the market value of the embedded
conversion feature.



The Company is exposed to credit risk on accounts receivable through
the ordinary course of business and the Company performs ongoing credit evaluations. Concentration of credit risk with respect to accounts receivables are limited due to the nature of our customer base (i.e., primarily Members). The Company
currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks.



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|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



Disclosure controls and procedures.    Disclosure controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the
Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls are also designed to reasonably assure that such information is
accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and implemented, can provide only
reasonable assurance of achieving an entitys disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in
decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.



At the end of the period covered by this report, Unifieds management, with the participation of
our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Our Chief
Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were not effective at the reasonable assurance level described above as of the end of the period covered in this report. See below for additional
discussion.



Changes in internal controls over financial
reporting.    Management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated any changes in the Companys internal control over financial reporting that
occurred during the most recent fiscal quarter. Based on that evaluation, management, the Chief Executive Officer and the Chief Financial Officer of the Company have concluded that no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended April 1, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



In the fourth quarter of fiscal 2005, the Company became aware of a material weakness
relating to the Companys internal control over financial reporting with respect to its promotions tracking system. In June 2005, the Company made a modification to the promotions tracking system that was previously installed during 2004. This
system will enable the Company to better monitor the cash flows relating to promotions and evaluate the factors influencing the effectiveness of promotional activities. Subsequent to the implementation of this modification, the Company discovered a
limitation in the reporting capabilities of the system that could lead to a material misstatement in our financial statements. Upon discovering this limitation, the Company performed extensive alternative analysis and we are satisfied that this has
not resulted in a misstatement of the information presented in our current or previously issued financial statements. During the first quarter of fiscal 2006, the Company implemented, among other things, an enhanced reconciliation process to ensure
that the impact of promotional activities is fairly stated in our financial statements. This process was further refined during the second quarter of fiscal 2006. We will continue to evaluate the effectiveness of such enhancements to be reasonably
assured that we have appropriately remedied the deficiency in our internal controls.



The
Company is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act for fiscal years ending on or after July 15, 2007. The Company is
currently in the documentation phase of its Section 404 compliance and will be required to comply with these disclosure requirements for its fiscal year ending September 29, 2007.



PART II.    OTHER INFORMATION



ITEM 1.    LEGAL PROCEEDINGS



The
Company is a party to various litigation, claims and disputes, some of which are for substantial amounts, arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, the Company believes
the outcome of these matters will not result in a material adverse effect on its financial condition or results of operations.



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ITEM 1A.    RISK FACTORS



There are
no material changes from risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended October 1, 2005, filed on December 21, 2005 (File No. 000-10815). Refer to Risk Factors in Part I,
Item 2 of this Quarterly Report on Form 10-Q for discussion of the Companys risk factors.



ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



There were no Company purchases of equity securities during the second fiscal quarter ended April 1, 2006.



Refer to Redemption of Capital Stock in Part I, Item 2 of this quarterly report on Form 10-Q for discussion of the Companys
share redemptions.



ITEM 3.    DEFAULTS UPON SENIOR SECURITIES



None.



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



|(a) |  | Date of Meeting: February 14, 2006 (Annual Meeting)
|--- |  | ---------------------------------------------------



|(b) |  | The matters voted upon at the meeting and the results of each vote are as follows:
|--- |  | ----------------------------------------------------------------------------------



Election of Directors



|                           |  |           |  |                  
|-------------------------- |  | --------- |  | -----------------
|Class A Directors          |  | Votes For |  | WithheldAuthority
|Louis A. Amen              |  | 94,250    |  | 5,250            
|David M. Bennett           |  | 94,750    |  | 4,750            
|John Berberian             |  | 93,750    |  | 5,750            
|Deiter Huckestein          |  | 94,750    |  | 4,750            
|Mark Kidd                  |  | 95,000    |  | 4,500            
|John D. Lang               |  | 94,250    |  | 5,250            
|Jay T. McCormack           |  | 94,750    |  | 4,750            
|Peter J. ONeal            |  | 94,750    |  | 4,750            
|Michael A. Provenzano, Jr. |  | 94,250    |  | 5,250            
|Thomas S. Sayles           |  | 94,250    |  | 5,250            
|Kenneth Ray Tucker         |  | 94,250    |  | 5,250            
|Richard L. Wright          |  | 95,000    |  | 4,500            
|                          



|                    |  |           |  |                  
|------------------- |  | --------- |  | -----------------
|Class B Directors   |  | Votes For |  | WithheldAuthority
|Darioush Khaledi    |  | 371,207   |  | 19,212           
|Douglas A. Nidiffer |  | 372,384   |  | 18,035           
|Robert E. Stiles    |  | 372,384   |  | 18,035           
|                   



During the second quarter, after the election of
the Board of Directors, the Company received notification from Director Bennett informing the Company that he was resigning from the Board effective March 22, 2006. For additional information, please see Form 8-K filed by the Company on
March 22, 2006 and incorporated herein by reference.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



None.



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|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | Exhibits                                                                                                                                                                                                              
|     | 
|3.1  |  | Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended
March 29, 2003).
|     | 
|3.2  |  | Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to the Registrants Annual Report on Form 10-K for the fiscal year ended September 27, 2003, filed on
December 16, 2003).              
|     | 
|31.1 |  | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                      
|     | 
|31.2 |  | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                      
|     | 
|32.1 |  | Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                      
|     | 
|32.2 |  | Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                      



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SIGNATURES



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



UNIFIED WESTERN GROCERS, INC.By

/s/    ALFRED A. PLAMANNAlfred A. Plamann President and Chief Executive Officer (Principal Executive Officer)By

/s/    RICHARD J. MARTINRichard J. Martin Executive Vice President, Finance & Administration and Chief Financial Officer (Principal Financial and Accounting Officer)By

/s/    RANDALL G. SCOVILLERandall G. Scoville Vice President, Accounting and Chief Accounting Officer




Dated: May 12, 2006