**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

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**FORM 10-K**

 

**FOR ANNUAL AND TRANSITION REPORTSPURSUANT TO**

**SECTIONS 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

| **(Mark One)**                                        |
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| ý                                                | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                  |   |   |
| **For the  fiscal year ended December 31, 2005** |
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| **OR**                                                |
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| o                                                     | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                  |   |   |
|                                                  |   | **For the transition period from                      to                    ** |

 

**Commissionfile number: 333-124826**

 

**TWC Holding LLC**

(Exact Name of Registrant asSpecified in Its Charter)

 

**Delaware**

(State or Other Jurisdictionof Incorporation or Organization)

 

**59-3781176**

(I.R.S. EmployerIdentification No.)

 

**4701 CreekRoad, Suite 200Cincinnati, Ohio 42542(513) 794-9800**(Address of Principal Executive Offices and Telephone Number,Including Area Code)

 

Securities registeredpursuant to Section 12(b) of the Act:

**None**

 

Securities registeredpursuant to Section 12(g) of the Act:

**None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes  o    No  ý

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes  ý    No  o

 

Indicate by check markwhether each registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. Yes  ý    No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of each registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. ý

 

Indicate by checkmark whetherthe registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. Large acceleratedfiler o Accelerated filer o Non-accelerated filer ý

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct)  Yes  o    No  ý

 

No voting stock of TWCHolding LLC is held by non-affiliates of TWC Holding LLC.

 

Indicate the number ofshares outstanding for each of the Registrant’s classes of Common Stock, as ofthe latest practicable date:   The Registranthas two classes of membership interests.  As of March 29, 2006 Veritas Capital ManagementII, LLC held 94.7% of the class A membership interests and the remaininginterests were held by various persons or entities.

 

**DOCUMENTSINCORPORATED BY REFERENCE:**

 

**None.**

 

 

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TWC HOLDING LLCTABLE OF CONTENTS

 
| PART I.                       |   |                                                                                                                  |   |
|------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|--------|
| Item 1:                            |   | Business                                                                                                              |   |
| Item 1A:                           |   | Risk Factors                                                                                                          |   |
| Item 1B:                           |   | Unresolved Staff  Comments                                                                                            |   |
| Item 2:                            |   | Properties                                                                                                            |   |
| Item 3:                            |   | Legal Proceedings                                                                                                     |   |
| Item 4:                            |   | Submission  of Matters to a Vote of Securities Holders                                                                |   |
| PART II.                      |   |                                                                                                                  |   |
| Item 5:                            |   | Market For a  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   |
| Item 6:                            |   | Selected Financial  Data                                                                                              |   |
| Item 7:                            |   | Management's  Discusssion and Analysis of Financial Condition and Results of Operations                               |   |
| Item 7A:                           |   | Quantitative  and Qualitative Disclosures About Market Risk                                                           |   |
| Item 8:                            |   | Financial  Statements and Supplementary Data                                                                     |   |
| Item 9:                            |   | Changes In  and Disagreements with Accountants on Accounting and Financial Disclosure                                 |   |
| Item 9A:                           |   | Controls and  Procedures                                                                                              |   |
| Item 9B:                           |   | Other Information                                                                                                     |   |
| PART III.                     |   |                                                                                                                  |   |
| Item 10:                           |   | Directors  and Executive Officers of the Registrant                                                                   |   |
| Item 11:                           |   | Executive Compensation                                                                                                |   |
| Item 12:                           |   | Security  Owenership of Certain Beneficial Owners and Management and Related Stockholder  Matters                     |   |
| Item 13:                           |   | Certain  Relationships and Related Transactions                                                                       |   |
| Item 14:                           |   | Principal  Accountant Fees and Services                                                                               |   |
| PART IV.                      |   |                                                                                                                  |   |
| Item 15:                           |   | Exhibits,  Financial Statements Schedules                                                                        |   |
| Signatures                         |   |
| Exhibits Index                     |   |
| Consolidated  Financial Statements |   |

 

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**Cautionary Statements Regarding Forward-Looking Statements**

 

Thisreport includes “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995, including statements about ourbusiness, operations, financial results and future prospects. Forward-lookingstatements are those that do not relate solely to historical fact. Theyinclude, but are not limited to, any statement that may predict, forecast,indicate or imply future results, performance, achievements or events. They may containwords such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,”“plan,” “will,” or words or phrases of similar meaning. They may relateto, among other things:

 

•                  our liquidity and capital resources;

 

•                  our contracts with the U.S. Government;

 

•                  the U.S. Department of Defense budget ingeneral and U.S. military activity in particular;

 

•                  our co-manufacturing plans;

 

•                  competitive pressures and trends in ourindustry;

 

•                  prevailing interest rates;

 

•                  legal proceedings and regulatory matters;

 

•                  other risks related to the notes (includingthe value of the collateral);

 

•                  statements with respect to the transactionsrelated to the acquisition of our business on June 30, 2004, or the “Transactions;”

 

•                  general economic conditions; and

 

•                  our development and expansion plans andexpectations for the future.

 

Theseforward-looking statements reflect our current views with respect to futureevents and are based on assumptions and subject to risks and uncertainties,including, but not limited to, economic, competitive and governmental factorsoutside of our control, that may cause actual results to differ materiallyfrom trends, plans or expectations set forth in the forward-looking statementsand may adversely affect us. These risks and uncertainties include thosefactors discussed in Part I, Item 1A, “Risk Factors,” and other risksdetailed from time to time in our reports filed with the Securities andExchange Commission.

 

Itis not possible for us to predict all risks and uncertainties, nor can weassess the extent to which any factor, or combination of factors, may causeactual results to differ from those contained in forward-looking statements. Giventhese risks and uncertainties, we urge you to read this report and anysubsequently filed reports with the understanding that actual future results may bematerially different from what we plan or expect.

 

Weare not under any duty to update any of these forward-looking statements afterthe date of this report to conform such statements to actual results or tochanges in our expectations. All forward-looking Statements contained in thisreport and any subsequently filed reports are expressly qualified in theirentirety by these cautionary statements.

 

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**PART I.**

 

*As used in this report, all references to “TWC Holding LLC,”“we,” “our,” “us,” “the Company” and all similar references refer to TWCHolding LLC, a Delaware corporation, and its subsidiaries as a consolidatedentity, unless otherwise expressly stated or the context otherwise requires.*

 

**ITEM 1: Business**

 

**Overview**

 

OnJune 30, 2004, TWC Holding LLC, (the “Company” or “Successor”) and ourwholly owned subsidiary, The Wornick Company, a Delaware Corporation (“Wornick”or “Operating Company”) as described in more detail below under the caption “—AcquisitionTransactions,” acquired our business from The Wornick Company, a NevadaCorporation (“Predecessor Company” or “Predecessor”). The Predecessor Companybegan operations in 1971, and was the first contractor to complete delivery ofMeals Ready-to-Eat, or “MREs,” to the Department of Defense, or “DoD” in 1981. Ineach subsequent year, the DoD has awarded our Predecessor Company and,subsequent to the acquisition, us contracts to deliver MREs and other foodproducts. In 1995, Mr. Ronald C. Wornick, one of the founders of ourbusiness retired and sold our Predecessor Company to certain of its employeesthrough an employee stock ownership trust. Since 1995, our business expandedinto new military and commercial products.

 

Throughour Operating Company, we are the leading supplier of individual and groupmilitary field rations to the DoD. We specialize in the production, packagingand distribution of extended shelf-life, shelf-stable and frozen foods in flexiblepouches and semi-rigid containers. With over 30 years of experience in thefood manufacturing and food processing businesses, we believe we have areputation for superior quality and service in developing and producing uniquemeal solutions for the military and for the consumer and foodservice markets. Weare a primary supplier to the DoD of MREs, Unitized Group Rations-A or “UGR-As,”and the Tray-Packs that are used in the Unitized Group Rations—Heat &Serve, or “UGR-H&S,” program. Our customers also include, but are notlimited to, Kraft Foods Inc., or “Kraft,” Gerber Products Company, or “Gerber,”Quaker Oats Company, or “Quaker,” Delmonte Foods Company, or “Delmonte,” The KeefeCompany, or “Keefe,” the Canadian Ministry of Defense, retail stores includingWalgreen Co., or “Walgreen” and 7-Eleven, Inc., or “7-Eleven,” and grocerystores such as The Kroger Co., or “Kroger,” Publix Super Markets, or “Publix,”and Meijer. Given the elevated levels of deployment of U.S. armed forces inAfghanistan and Iraq and an anticipated continuation of high levels of U.S.military activity worldwide, we believe that the demand for our military foodproducts will remain strong.

 

Wehave become a leader in developing and commercializing thermostabilizationtechnologies for processing and packaging foods using flexible and semi-rigidpackaging. Our packaging technologies and stabilization processes prolong theshelf-life and enhance the quality of our products and have a broad range ofapplications. The stabilization processes we utilize include retort processing,hot-fill, in-line pasteurization, post-packaging pasteurization and frozen foodtechnologies. With our industry-leading technology and capabilities, we havedeveloped innovative approaches to the manufacturing of entrées, side dishesand desserts, and we offer a turnkey food processing operation that allows usto manage a concept from product development to full-scale manufacturingthrough ultimate distribution.

 

**Acquisition Transactions**

 

OnDecember 3, 2003, TWC Holding LLC through our wholly owned subsidiary, TheWornick Company, a Delaware corporation, an acquisition vehicle formed by TheVeritas Capital Fund II, L.P., and its general partner, Veritas CapitalManagement II, L.L.C. (Veritas Capital Management), entered into an AssetsPurchase and Sale Contract with The Wornick Company, a Nevada corporation, orthe “Predecessor Company,” and its subsidiaries, The Wornick Company Right AwayDivision, a Nevada corporation, The Wornick Company Right Away Division, L.P.,a Texas limited partnership, and Right Away Management Corporation, a Texascorporation. The Assets Purchase and Sale Contract, as amended, provided forthe purchase by us and the sale by the Predecessor Company, of the business ofthe Predecessor Company and

 

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itssubsidiaries as a going concern, including substantially all of their operatingassets, and the assumption of certain of the liabilities of the PredecessorCompany and its subsidiaries, or the “acquisition.” The gross purchase price ofthe business, subject to a post-closing purchase price adjustment, was $155million, of which $150 million was paid to the sellers at the closing and theremaining $5 million was paid to an escrow agent as escrow for the sellers’obligations under the Assets Purchase and Sale Contract. The acquisition closedon June 30, 2004. In October 2004, approximately $99,000 was repaidby the sellers to us as a purchase price adjustment. To date, we have notsubmitted any request for payment on the escrowed funds and on October 3, 2005,the remaining escrowed funds were released to the sellers.

 

TheOperating Company funded the purchase price of the acquisition and the relatedfees and expenses with the proceeds of an offering of our 107/8% Senior Secured Notes due 2011, or the original notes, and thecontribution of equity investments in TWC Holding LLC as follows:

 

•                  the purchase by the equity investors of Class Ainterests in TWC Holding LLC for $37.5 million in cash;

 

•                  the contribution by TWC Holding LLC of allcash received by it from the equity investors; and

 

•                  gross proceeds of $125 million from theissuance and sale of the original notes.

 

TheOperating Company entered into a senior secured revolving credit facility, orthe credit facility, of up to $25 million concurrently with the closing of theacquisition and the notes offering. We have the option to pay only interest onamounts borrowed under the facility at an annual adjustable interest ratecalculated in accordance with the applicable promissory note.

 

Theclosing of the offering of the original notes, or “notes offering,” occurredsimultaneously with the closing of the acquisition, our new credit facility andthe other financing transactions described above.

 

Werefer to the acquisition, the notes offering, our entering into the new creditfacility and the other financing transactions described above collectively asthe “acquisition transactions.”

 

**Issuance of 13.875% Senior PIK Notes due 2011 by TWC HoldingLLC and TWC Holding Corp. on February 11, 2005**

 

OnFebruary 11, 2005, the Company and its wholly-owned finance subsidiary,TWC Holding Corp., co-issued their 13.875% Senior PIK Notes due 2011, or the “SeniorPIK Notes,” in the approximate aggregate principal amount of $62,259,000 with adiscount of approximately $36,259,000. The Senior PIK Notes earn interest atthe rate of 13.875% per annum, mature on August 15, 2011 and are unsecuredobligations of TWC Holding LLC and TWC Holding Corp. Neither the Operating Companynor any of its subsidiaries guaranteed the Senior PIK notes. The notes limitthe Company’s ability to incur additional indebtedness and pay dividends ormake other distributions as well as to make certain investments and sellcertain assets or merge with or into other companies. Because the Company isa holding company with no operations and has only its investment in theOperating Company, and because TWC Holding Corp. has no independent operationsor assets, future cash flows or assets of the Operating Company through 2011 may berequired to service the $62.3 million Senior PIK notes upon their maturity.

 

**Segment Information**

 

OurOperating Company has two reportable segments, the Right Away Division, or “RAD,”and the Prepared Foods Division, or “PFD.”  The RAD division is our coremilitary supply business and the PFD division includes our core consumer andcommercial business. In addition, the PFD division supplies the RAD divisionwith intermediate items used to assemble products distributed by the RADdivision as well as directly supplying military customers with certain items. OnFebruary 6, 2006, we announced the

 

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consolidationof our RAD operations into our PFD division. For a fuller discussion of theoperating results of these segments, please see Part II, Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Results of Operations—Operating Segment Results.”

 

**Industry Outlook**

 

*Military.*The U.S. defense environment has changed dramatically since 2001 withthe extensive deployment of U.S. armed forces to Afghanistan and Iraq. In bothsituations, the U.S. armed forces require ongoing ration support systems inintense and highly mobile combat situations. With the changes in the military’smobilization techniques and the need for the highest level of food safety andsecurity, we believe that after completion of our recently announced move toconsolidate operations by discountinuing our Assembly operations facility inMcAllen, Texas and shifting the work performed at that location to the GreaterCincinnati Tri-state area, we are well situated to continue our leadershipposition in feeding the military in both times of peace and war.

 

Weexpect our core military business of providing extended shelf-life products tothe military customers to experience steady to slightly lower demand in theupcoming year due to recent forth quarter surge contract orders placed by theDoD ahead of the MRE-26 award which is a five year fixed price contract throughfiscal year 2010. We are one of only three companies approved by the DoD tosupply MREs.  As of March 29, 2006 the DoDAward for the MRE-26 to 30 Bid has not been announced.

 

*Commercial.*We believe the foodservice market to be approximately $2.5 billion with anannual growth in entrees to be 1% to 2%. We believe there is an opportunity forus to increase our share of the commercial and institutional shelf-stablefoodservice market by supplanting frozen and canned products with ourflexible-pouch shelf stable entrees, side dishes and sauces. In 2004, ourfoodservice initiatives were focused mainly on market tests to customers suchas Kroger supermarket delis and the U.S. Navy. In 2005 we launched our initialproduct offerings and had sales of approximately $2.0 million. In fiscal 2006we plan to continue effectuating our foodservice market expansion plans.

 

**Products**

 

*Military Products*

 

Thefollowing table outlines the products for our military segment:

 
| **Product Category** | ** **                                                         | **Description and Use** | ** ** | **What We Do**                                                                                                                                                                                                                             |
|----------------------|--------------------------------------------------------------------|-------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •               | Meal, Ready to Eat (MRE)                                           |                    | •     | Self-contained operational ration, including  entrée, side dish, snack components, accessory packet and flameless heater, for  the individual soldier in a combat environment                                                         |   | • | Ration assembly and production of over 60 of the  85 MRE components, including retort entrées and side dishes, extended  shelf-life components and hot-fill components |
|                 |                                                               |                    |       |                                                                                                                                                                                                                                       |   |   |   |
| •               | Unitized Group Rations — A (UGR-A)                            |                    | •     | Group-feeding meal modules for 50 soldiers when  field kitchen equipment is available, using frozen, canned or dried foods to  prepare entrées and side dishes, and includes disposable accessories such as  cups, utensils and trays |   | • | Supply chain management, assembly and distribution |
|                 |                                                               |                    |       |                                                                                                                                                                                                                                       |   |   |   |
| •               | Unitized Group Rations — Heat & Serve  (UGR-H&S) |                    | •     | Group-feeding meal modules for 50 soldiers, using  ready-to-                                                                                                                                                                               |   | • | Manufacture UGR-H&S semi-rigid flexible  polymeric Tray- |

 

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|   |                                       |   |   | heat shelf-stable Tray-Packs rather than frozen,  canned or dried foods, and includes disposable accessories such as cups,  utensils and trays |   |   | Packs                                                                                      |
|--------|--------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------|
|   |                                       |   |   |                                                                                                                                           |   |   |                                                                                       |
| • | Humanitarian Daily Rations (HDR)           |   | • | Extended shelf-life individual full-day ration and  accessories for a moderately malnourished individual                                       |   | • | Packaging subassembly and final ration assembly,  including retort entrees and side dishes |
|   |                                       |   |   |                                                                                                                                           |   |   |                                                                                       |
| • | Tailored Operational Training Meals (TOTM) |   | • | Low-cost alternative to MRE for use in training,  primarily by the National Guard                                                              |   | • | Packaging subassembly and final ration assembly,  including retort entrees and side dishes |

 

*Meal, Ready-to-Eat (MRE)*

 

TheMRE is considered one of a few mission-critical “war-stopper” items that areprocured by the U.S. Government. We have been involved in the supply of MREssince the inception of the DoD’s MRE program in 1978 and have delivered morethan 383 million individual MREs to the U.S. military. Each MRE has ashelf-life of three years at 80 degrees Fahrenheit and is packaged in ahermetically sealed MRE meal bag that is resistant to insects, moisture, andnuclear, biological and chemical agents. We produce over 60 of the 85components used in MREs, many of which are common to more than one of the MREmenus. Each MRE has an average of 17 components, including a flameless heaterto quickly warm the entrée. The manufacturing of MRE entrées is highly complexand requires expertise in retort flexible pouch processing and strict adherenceto DoD specifications. We have received numerous awards for quality in themanufacturing of MRE entrées, including recognition from the Defense SupplyCenter Philadelphia, or “DSCP,” for the highest quality level of any MREcontractor.

 

Wealso use modified atmosphere packaging techniques to extend the shelf-life ofthe various snack and bakery components of the MRE. We have received numerousquality awards from the DSCP for the assembly and packaging of MREs. An MRE iscapable of withstanding low-level airdrop and storage in heavy humidity to wetconditions without degradation of the packaging.

 

Wecurrently provide MREs to the DoD pursuant to a contract awarded in March 2003by the DSCP, which is responsible for procuring military field rations for theDoD, in connection with an Industrial Preparedness Agreement between the DoDand us. We expect the current MRE-25 contact to expire near the end of thefirst quarter 2006. The DoD enters into Industrial Preparedness Agreements withcontractors to ensure that a high production and assembly capacity and a largeamount of special equipment is available at all times to accommodate apotential surge in military requirements. The typical historic MRE contract isa three-year fixed-price contract consisting of one base year and two option years,which the DSCP has always exercised. Our current contract calls for a basedelivery of 875,000 cases (12 MREs per case), plus an add-on of up to 50% ofthe base MRE quantity, increasing the potential total volume to approximately1.3 million cases per year, not including any military surge quantities. Inthe third and fourth quarters of fiscal 2005, the DSCP invoked its rights underthe contract to purchase surge quantities from us. Awards were granted to usunder three separate surge awards totaling approximately $71.3 million. Weexpect final delivery of all surge orders to be completed in April 2006. Wesubmitted a bid for the next MRE contract during 2005, which we anticipate willbe awarded at the expiration of the current MRE-25 surge awards, and which willbe a five-year contract with a one-year base period and four renewal periods ofone-year each, with deliveries starting in 2006. The DSCP, as part of its “TotalSystems Approach,” is also evaluating the outsourcing of remaining governmentfurnished components of the MRE program for procurement by the assemblycontractors.

 

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*Unitized Group Rations-A (UGR-A)*

 

TheUGR-A provides A-Ration (freshly prepared) meals in the field that arecomparable to commercially available hot foodservice meals. The UGR-A is usedwhen field kitchen equipment becomes available and is configured into 50-personmeal modules for ease of ordering and distribution. Each UGR-A module consistsof three boxes, one with frozen food and the rest containing non-refrigeratedcommercial food items and side dishes, eating utensils, beverages andcondiments. The seven breakfast and 14 lunch/dinner menus contain all necessaryfood items and disposable items (such as cups and trays), with the exception ofperishable items such as bread and milk. Under our UGR-A contract, UGR-Asassembled for consumption in the continental United States must have a minimumshelf life of three months, and modules assembled for consumption outside theUnited States must have a shelf life of nine months.

 

Weare responsible for the ordering, packaging and logistics associated withassembling and delivering UGR-As to the required military bases. Substantiallyall of the UGR-A components are available from multiple commercial foodsuppliers. We are currently working under an indefinite delivery, indefinitequantity contract awarded by the DSCP in July 2004. The eight-yearcontract calls for delivery of the meal modules on an order-by-order basis. UGR-Acontracts designate a set of military bases in the continental United States towhich the contractor will provide UGR-A modules during the term of the contract.Every week, we and other contractors submit updated component pricing to theDSCP for the next one-week period to adjust for commercial component pricefluctuations. This component price information is used to determine the pricefor all UGR-As ordered during the following one-week period. These weekly pricesubmissions are also evaluated to determine awards of UGR-A purchases fordelivery outside the continental United States during the applicable one-weekperiod. We delivered approximately 316,000 modules in 2005, approximately280,000 modules in 2004 and 856,000 modules in 2003. Since the inception of theUGR-A program in 2000, we have been the leading supplier to the DSCP in termsof total volume. We believe that we have historically enjoyed a strong positionin this market due to our ability to respond on short notice with on-timedelivery of high-quality products, generally at the lowest price to the DSCP.

 

Weplan to expand the scope of our participation in the UGR-A program by directlysupplying our own frozen breakfast and dinner entrées for the program, inthree-to-five pound Great Food Express pouches. In early 2004, we receivedapproval from the DoD to supply a Great Food Express entrée for the UGR-Aprogram and began shipping the entrée in late 2004. We received approval fromthe DoD to supply a second entrée developed by our research and developmentfacility for the next program year, which commenced in October 2005.

 

Wehave other food items that are in various stages of development and evaluationby the DoD. We were one of four contractors awarded an eight-year contract forUGR-A and received the highest market share of the awarded contractorsaccording to the estimated annual quantities provided by the DSCP forcontinental United States or “CONUS,” UGR-A sales. The contract includesspecific CONUS military base destinations that we will serve exclusively forthe eight-year period. In addition, we will be eligible to bid for the DSCP’sUGR-A requirements outside of the continental United States during theeight-year contract.

 

*Tray-Pack*

 

Wemanufacture the Tray-Pack, a shelf-stable ration packaged in a semi-rigidflexible tray as an extended shelf-life component and the primary outsourcedproduct of the UGR-H&S program. The UGR-H&S is a transitional fieldration that is similar to the UGR-A discussed above but uses shelf-stableready-to-heat Tray-Packs rather than frozen, canned or dried foods. It is atransitional field ration that can be used in the early stages of militaryactivity because it does not require the extensive support infrastructure ofrefrigeration or full kitchens. Tray-Packs can be heated in steam tables andserved directly from the tray. Each container provides between nine and 18servings. The entrée and side servings are ready-to-heat, reducing foodpreparation time and water and fuel usage. As with our entrée packs for MREs,we utilize

 

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ourexpertise in food processing and retort packaging to manufacture durablelow-cost Tray-Packs. We supplied the DSCP with this product under a five-yearfixed-price contract, which expired in 2005. As of March 29, 2006, the newTray-Pack award has not been announced. Since the U.S. Government began usingpolymeric trays in military ration programs, we have been the number onesupplier of these trays to the DSCP in terms of total volume and qualityperformance, as reported by the DSCP and the U.S. Department of Agriculture, orthe “USDA,” respectively.

 

Currently,the DoD assembles the UGR-H&S ration at government-owned depots, but theDSCP is evaluating the possible outsourcing of the assembly of UGR-H&S. Basedon our experience as the leading supplier of UGR-As, the assembly of which isnearly identical to the UGR-H&S, we believe we are strongly positioned tobe a leading provider of UGR-H&S assembly services. We also plan to be in theforefront of the development of entrées, side dishes and sauce components forthe Army’s new Unitized Group Rations — Express (UGR-E) program, which usesself-heating Tray-Pack modules to provide hot meals in remote locations, aswell as other new Army feeding systems.

 

*Humanitarian Daily Rations (HDR)*

 

TheHDR is similar to the MRE in its packaging, but its contents are designed toprovide a full days’ sustenance to a moderately malnourished individual ratherthan feed an active soldier. The HDR is composed of ready-to-eatthermostabilized entrées and complementary components. In order to gain thewidest possible acceptance from potential consumers with diverse religious anddietary restrictions from around the world, the HDR contains no animal productsor animal by-products, except for minimal amounts of dairy products, and itexcludes any alcohol or alcohol-based ingredients. The meal bag containsuser-friendly graphics describing its contents and instructions for opening thebag in three different languages. Additionally, these rations are packaged towithstand extreme environmental conditions and to allow airdrops whennecessary.

 

Aspart of our MRE base award, we are responsible for manufacturing theentrée and support components and assembling the HDR pack. In conjunction withthe MRE contract awarded to us in March 2003, we are required to deliver aminimum of 100,000 and a maximum of 2.5 million HDR day-packs per year, asmay be ordered by the DSCP, throughout the three-year life of the MREcontract. HDR day-packs are stockpiled worldwide to prepare for emergencysituations. HDR inventory is managed by the Defense Security Cooperation Agency(DSCA) and HDR day-packs are provided in emergency and other humanitariansituations at its discretion. DSCA employs the DSCP solely as a purchasingauthority for assembled HDR day-packs. In fiscal 2005, we deliveredapproximately $395,000 worth of humanitarian rations in support of reliefefforts following the earthquake in Pakistan and approximately $1.2 million inspecial Humanitarian Aid packages to victims of Hurricane Katrina.  Also, as discussed above, in the third andfourth quarters of 2005, the DoD exercised surge options in the wake of thoseHurricanes which resulted in approximately $71.3 million of unplannedorders.  These surge orders will primarilytake place in the fourth quarter 2005 and first quarter of 2006.

 

*Tailored Operational Training Meal (TOTM)*

 

TheTOTM ration provides an alternative operational training meal in lieu of sacklunches and catered commercial meals to soldiers engaged in inactive dutytraining for use in situations where traditional operational ration meals arenot mandated. This ration employs many of the same components as the MRE. Menustypically contain an MRE entrée, wet-pack fruit, a beverage base, flamelessheater, dining kit and other assorted components. Since they were introduced in2002, TOTM rations have been used mainly for training by the National Guard. Thismeal, a low-cost alternative to MREs, helps individuals become familiar withthe preparation, use, consumption and disposal of pre-packed meals similar toMREs. The TOTM is lightweight and fits easily into military field clothingpockets. It also may easily be adapted for disaster relief efforts.

 

Aswith our MRE and HDR rations, we manufacture entrée packs and provide productassembly services for TOTMs. Under a Blanket Purchase Agreement issued bythe DSCP in April 2002, we provide TOTMs as ordered by individualNational Guard supply centers, through the DSCP.

 

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*Co-Manufactured Products*

 

Throughour co-manufacturing program, which began in 1998, we manufacture a variety ofextended shelf-life products for leading branded food companies, includingDelmonte, Gerber, Keefe, Kraft, Quaker and other co-manufacturing customers. Theseproducts are marketed and sold by our customers into their retail andfoodservice channels under nationally recognized brands. We target brandedcompanies that are leaders in their respective categories and have productsthat align well with our core competencies in heat seal and thermostabilizedproducts. Many of these products require us to use a combination of ourexisting manufacturing equipment as well as newly purchased equipment, the costof which is partially borne by our contracted co-manufacturing customers. Our co-manufacturingprogram utilizes many of the technologies and processes that we have developedfor our military business.

 

Themajority of our co-manufacturing supply contracts include a capital componentthrough which the customer funds a portion of the capital required to supportproduction of the related product. Under these arrangements, we provide theinitial financing for capital expenditures. We own all of the equipmentacquired under such agreements, which are structured to minimize our obligationto make capital expenditures if a project is discontinued unexpectedly byrequiring the customer to pay the entire balance of the capital expenditureportion remaining due under the supply contracts. If we do not use the entirecapacity of the equipment to supply our co-manufacturing customer, we have theright to use the equipment in our other businesses. Our co-manufacturingcontracts are generally mutually exclusive, in that we are restricted frommaking the co-manufactured product for other customers, and likewise ourcustomer may not buy such products from other suppliers.

 

*Kraft Macaroni & Cheese*

 

Kraft,the largest seller of shelf-stable meals in the United States, is ourlongest-standing co-manufacturing customer. Since 1998, we have worked inpartnership with Kraft to produce single-serve frozen Kraft Macaroni &Cheese in 7-ounce and 10-ounce packages, which are frozen in-line and shippeddirectly into Kraft’s frozen foods distribution network. We were awarded thisbusiness on the basis of our proprietary blending process. We were identifiedby Kraft as the only supplier able to match the quality and taste of Kraft’s “bluebox” Macaroni & Cheese. Kraft distributes this product to some of thelargest national restaurant chains for service as a selection on their children’smenus.

 

Undera contract effective September 2003, we are the exclusive manufacturer ofsingle-serve frozen Kraft Macaroni & Cheese through 2006. Following2006, the contract will renew automatically in one-year increments unlessterminated within 180 days of the expiration date. Our deliveries ofsingle-serve frozen Kraft Macaroni & Cheese have grown by more than16% per year since the original contract began in 1998. In 2004, we installed ahigh-speed production line which effectively doubled our prior capacity forthis product. We expect that this new production line will contribute tocontinued growth and allow us to expand our production at a faster rate.

 

*Kraft Boca Italian Entrées*

 

InMarch 2003, we began manufacturing a line of frozen Italian entrées forKraft’s Oscar Mayer division. Boca Italian entrées are an expansion of OscarMayer’s established Boca line of meat-substitute products. We manufacture twosingle-serve entrées, Italian Lasagna and Cheese Ravioli, which are coveredwith a specially formulated sauce containing Boca crumbles. The product ispackaged in an oven-ready tray that is heat sealed and shipped frozen to Kraft’swarehouses for distribution to retail outlets. In fiscal 2005, this linecontributed approximately $1.9 million to revenue. As this contract expired atthe end of fiscal 2005, we anticipate that production of the Kraft Boca lineswill cease in June 2006.

 

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*Gerber Lil’ Entrées*

 

In2001, we developed and began manufacturing nine varieties of Lil’ Entréespursuant to an exclusive North American supply agreement for Gerber, aninternational branded baby food company. This shelf-stable product line is anextension of Gerber’s industry-leading baby food line, packaged in a plastictray and targeted for babies between eight months and 14 months. We haveentered into an agreement with Gerber to construct a new high-speed productionline, that will come on-line in fiscal 2006, that will triple our currentcapacity to produce Lil’ Entrées in 2006. Upon the commencement of productionon the new line, our agreement with Gerber will extend through 2010. Thecontract will automatically renew for additional two-year increments followingthat time unless otherwise terminated.

 

*Quaker Oats Company*

 

InOctober of 2004, we began manufacturing shelf stable products launched ina limited number of markets pursuant to a three-year exclusive supply agreementwith Quaker, a unit of PepsiCo Beverages and Foods, one of the worlds largestconsumer brand companies. These products are extensions of one of Quaker’scategory-leading brands and were launched nationally in 2005.

 

*Delmonte*

 

InJune 2005, we began manufacturing shelf stable bowl products for Delmonte’suse in their private label soup business under a five-year agreement. Subsequentlyin early 2006, Delmonte sold their private soup label business to a third partywho has yet to determine if Wornick will continue to be the manufacturer ofchoice for this business. We are currently working with Delmonte and areevaluating our options under the existing agreement.

 

*Keefe*

 

InMarch 2005, we began manufacturing shelf stable products pursuant to an exclusivefive-year agreement with automatic renewal for a three-year term. Keefe is aleading supplier to and operator of correctional institution commissariesthroughout the United States. Wornick provides shelf-stable pouched entrees forsale within these commissaries under the Keefe name brand.

 

*Other Customers*

 

In December 2005, we entered into a three-yearagreement with three-year automatic renewals to produce shelf-stable entrees inbowls and pouches as well as shelf-stable meal kits. The customer is a fastgrowing provider of direct to consumer marketed foods with specific nutritionalneeds. The customer cannot be disclosed because of applicable confidentialityobligations.

 

*New Business Opportunities*

 

Wecontinually seek opportunities to use our technologies and experience topartner with established branded food companies in new co-manufacturingarrangements. We continue to be engaged in several large projects that are invarious stages of development and consumer testing. All of these projects are withcategory-leading companies, including some of the world’s largest food brands. Webelieve that we are well-positioned to secure contracts in connection withthese and future opportunities.

 

*Branded Consumer Products*

 

In2000, we developed, produced, and marketed Homestyle Express, an award-winningbrand of shelf-stable, single-serve bowl meals positioned to offer goodtasting, convenient food for busy adult consumers. Homestyle Express wasconsistently recognized for its superior taste and has received Gold MedalTaste Awards for Excellence from the American Tasting Institute for fourconsecutive years beginning in 2001.

 

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Italso received the Best New Product Award from the Convenience Store News andseveral “innovation in packaging” awards.

 

TheHomestyle Express product line consisted of five entrées packed in shelf-stablemicrowaveable 10.5-ounce bowls that require no refrigeration and heat in 90seconds and three Asian Style Selections that were packed in 18-ounce stand-uppouches which were ready to heat and serve in two minutes. We offered HomestyleExpress products for sale through various channels, including mass merchandiseoutlets, grocery stores, drug stores, convenience stores and warehouse clubs.

 

OurHomestyle Express products were initially sold in stores operated by Wal-MartStores, Inc., or “Wal-Mart.”  However, due to slow sales, we have notachieved our sales and profitability targets for this brand and in the thirdquarter of 2005 we discontinued sales of this line.

 

*Branded Foodservice Business*

 

In2004, we began test marketing our services for customized foodservice entrée,side dish and sauce applications under the Great Food Express brand. This brandis targeted at large foodservice chain restaurants that seek productscustomized to their specifications in ready-to-heat three-to-five poundshelf-stable pouches. Our shelf-stable products are designed for high-volumechain restaurants and institutional users that may have frozen/refrigeratedstorage constraints, food preparation labor issues, high turnover or solidwaste disposal problems.

 

Webegan shipping our Great Food Express commercial foodservice brand in the firstquarter of 2004 to customers such as Kroger supermarket delis and the U.S. Navy.In addition, we plan to expand the scope of our participation in the UGR-Aprogram by directly supplying our own frozen dinner entrées for the program inthree-to-five pound Great Food Express pouches. We have been approved for 2 of14 total dinner menus and are seeking to gain additional approvals in 2006. Finally,we additionally launched our foodservice direct sales channel to prime militaryfoodservice vendors via the launch of our A la Smart brand in July 2005.

 

**Manufacturing and Processing**

 

Weprocess and package foods using the latest flexible packaging and stabilizationtechnologies. We use a wide range of flexible packaging in the manufacturingprocess, including pre-formed pillow and gusseted pouches, vertical andhorizontal form fill pouches, and single serve and bulk size semi-rigidplastic containers. All of these packages use heat seal technology to produce ahermetically sealed container.

 

Ourstabilization processes are enhanced by our ability to integrate five primarystabilization methods into each of our packaging technologies, includingretort, hot-fill, in-line pasteurization, post-packaging pasteurization andfrozen food technologies:

 

•                  *Retort*—the food product, packaged in a hermeticallysealed container, is heated to above 250 degrees Fahrenheit in order torender the food product shelf-stable.

 

•                  *Hot-fill—*the food product, typically a sauce orbeverage, is dispensed into a package while the product is still hot prior tosealing and cooling of package in order to render the food shelf-stable.

 

•*                 **In-line pasteurization—*the food product, typically a product that issensitive to high temperatures, is heated before the product is packaged andsealed in order to extend the life of the product but not render itshelf-stable.

 

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•*                 **Post**-packaging pasteurization—*the food product, typically a product that issensitive to high temperatures, is heated after the product is packaged andsealed in order to extend the life of the product but not render itshelf-stable.

 

•*                 **Frozen stabilization—*the temperature of the food product israpidly lowered below 32 degrees Fahrenheit in order to preserve the productfor extended periods of time.

 

Thesemethods, along with our modified atmosphere packing technology, prolongshelf-life and maintain product quality. Using portion control technology, wepackage individual serving size packages in flexible and semi-rigid formats forretorted, frozen or pasteurized products ranging in size from three ounces to fivepounds.

 

Ourmanufacturing plants utilize a comprehensive quality systems approach thatincorporates the benefits of International Standards Organization systems,total quality management and statistical process control systems. We purchasemodular and versatile equipment for use in our manufacturing facilities, whichwe then customize in-house to our specifications to meet the requirements ofeach product line. This has permitted us to increase the flexibility of ourmanufacturing lines and enhance our manufacturing efficiency.

 

Wehave also improved efficiency through our continual investments in integratingmore productive manufacturing equipment and the strategic implementation ofautomated technology into many aspects of our operations. This integration hasreduced our labor and manufacturing costs, removed manufacturing inefficienciesand improved response times for deliveries. In addition, automatedtechnologies, including robotics and self-guided transport carts, have reducedthe frequency of on-site employee injuries, increased the efficiency of ourmanufacturing lines and the utilization of our retort equipment.

 

Inaddition to our manufacturing capabilities, we offer an extensive range ofservices in custom contract assembly, product design and supply chainmanagement. We operate fully independent Enterprise Resource Planning (ERP)systems at each of our primary facilities to optimize our supply chain and toensure efficient receiving and warehousing procedures and production, allowingus to meet demanding delivery schedules and adhere to rigorous qualitystandards. We are the quality leader among our competitors in the production ofMREs, UGR-As and Tray-Packs and have received the number one rating in customerquality audits and manufacturing quality from the DSCP. The DSCP audits itssuppliers annually, and on-site U.S. military inspectors and the USDA monitorour quality performance.

 

Ourcontracts with the DSCP require us to maintain a maximum supply capacity foreach of our DoD supply programs, including a maximum of 834,000 cases per monthunder our MRE contract, 750,000 modules per month under our UGR-A contract andapproximately 117,000 to 217,000 units per month under our Tray-Pack contract. Wegenerally operate below these levels on a monthly basis. Therefore, ourfacilities usually have significant excess manufacturing capacity, whichprovides us with substantial flexibility in planning future initiatives in ourcommercial and military businesses.

 

**Sales, Marketing and Distribution**

 

*Military*

 

Ourcontract administration department is responsible for overseeing our contractswith the DSCP. This group, together with our executive team, is dedicated tomanaging and serving the DSCP, and ensuring that we are meeting therequirements of the U.S. Government. Our sales to the Canadian military aremanaged by a sales manager in our sales organization.

 

Weship products for which we provide final assembly, such as MRE and UGR-Amodules, directly to military bases in the continental United States, as wellas to U.S. military installations overseas and various

 

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globalstorage centers. We ship products for which we provide manufacturing, such asTray-Packs, to U.S. Government depots for final assembly and distribution.

 

*Co-Manufacturing*

 

Historically,we acquired new co-manufacturing business by responding to potential customers’requests for proposals and in 2005 we actively pursued new co-manufacturingbusiness through the execution of multiple projects for strategic accounts thatare leaders in their respective food categories. We plan to aggressively marketour supply chain services and value-added product solutions while leveragingour extensive existing contacts and support infrastructure.

 

Inour co-manufacturing program, our Chief Operating Officer is responsible forcoordinating the deployment of internal resources, including research anddevelopment, engineering, supply chain management and manufacturing, to executea comprehensive, turnkey commercialization plan to develop, test, andultimately manufacture new products. After a product is launched, the accountis assigned to a customer service representative, who is responsible forday-to-day account management.

 

OurSupply Chain department is focused on successfully integrating our systems withthose of our customers to provide a comprehensive outsourced product managementsolution, from the sourcing of material to the delivery of the end product. Historically,our reputation in the industry and our record of meeting our commitments to ourcustomers have led customers to seek out our services. In the future, we intendto pursue a more aggressive sales strategy in which we will seek out specificbranded partners and initiatives that align with our core competencies in heatsealed flexible packages and thermostabilized products. We will continue topursue relationships with large branded businesses that are leaders in theirrespective categories and we intend to add at least two more major industryplayers as customers of our co-manufacturing business over the next three years.Generally, we have favored deeper, more value-added relationships with asmaller number of customers, rather than less comprehensive relationships withmany customers. This approach has allowed us to build on our strengths byparticipating extensively in the early stage development of products and theircommercialization. We generally ship co-manufactured products to our customers’warehouses for further distribution to consumer outlets.

 

*Branded Foodservice Business*

 

Ourbranded foodservice business is managed by our vice president of sales andmarketing. We handle our Great Food Express military sales directly. We have introducedGreat Food Express into the military prime vendor feeding programs through ourstrong existing military business relationships.

 

**Suppliers**

 

Wepurchase our food and packaging supplies on an as-needed basis from commercialsuppliers, with the exception of a limited number of components that aresupplied to us by the U.S. Government for our MRE contract. The DSCP hasindicated that it is evaluating the outsourcing of all components of the MREprogram. We do not rely on any single commercial supplier for a significantcomponent of our business.

 

**Product Development**

 

In2003, we constructed a modern product development facility to support ourongoing efforts to refine and improve the quality of our existing products. Wemaintain an ten-person research and product development team with culinaryexpertise, in-house process authority and food science knowledge. This teamsupports our commercial and military product development and collaborates withour co-manufacturing customers. For the military products, the team develops awide range of products from breakfast to dessert, that meet stringentgovernment nutritional requirements. In addition, we have worked with the U.S.Government on creating packaging materials for field rations, such as ourdevelopment and production of the Tray-Pack for the UGR-H&S program. Thisteam also provides expertise on package selection to ensure that the

 

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packaging can withstandairdrop, rough handling and temperature extremes.  In addition, this teamworks with our engineering staff and operations personnel to develop theproduct, package and process for each product concept.

 

Our product developmentinitiatives arise from a number of sources.  We react to our customers’needs by focusing a portion of our product development resources on productideas that satisfy their requirements.  In other cases, our productdevelopment initiatives are responses to our internal desire to reduce costs orimprove product quality on existing product lines.  Project-specificco-manufacturing initiatives are designed with fee structures that allow us tocover our expenses related to product development.  In addition, wemonitor market trends to identify potential opportunities to extend our ownbrands through additional product development activities.

 

**Customers**

 

Our sales are predominantlyderived from three contracts with the DSCP, which is responsible for theprocurement of military field rations for the DoD.  Approximately 81% ofour net sales for the year ended December 31, 2005 were made directly orindirectly to the U.S. Government.

 

Our primary co-manufacturingcustomers include Delmonte, Keefe, Kraft, Gerber, Quaker and otherco-manufacturing customers, which collectively accounted for approximately 16%of our net sales for the year ended December 31, 2005.  For the yearended December 31, 2005, our branded consumer, foodservice and miscellaneousproducts accounted for approximately 3% of our net sales.

 

**Competition**

 

The MRE rations supplymarket is limited to us and two competitors: Ameriqual Foods, Inc. andSOPAKCO, Inc.  Both of our competitors in this market manufactureextended shelf-life foods similar to ours.  Their products include MREs,TOTMs and HDRs as well as several commercial products.  In the UGR-A market,we compete with Ameriqual Foods, Inc., Labatt Foods, a regional foodservicedistributor, and The Advocacy and Resource Center.  In the Tray-Packmarket, our sole competitor has been Stegner Foods, or “Stegner,” a smallspecialty food products manufacturer based in Bridgetown, Ohio.  InJanuary 2005, Stegner ceased operations indefinitely.  We are the onlycompany with prime vendor contracts in each of the MRE, UGR-A and UGR-H&Sprograms.  Our contracts under these programs are subject to the risksrelated to government contracts.  For a discussion of these risks, pleasesee the related risk factors under Part I, Item 1A, “Risk Factors—Risks Relatedto Our Business.”

 

In the commercial extendedshelf-life foods market, our main competitors include Truitt Bros., Inc.and Ameriqual Foods, Inc.

 

In the branded foodservicemarket, our competitors include major consumer branded food companies, such asHormel Foods Corporation and General Mills, Inc.’s Betty Crocker. Competitors to our Great Food Express line include frozen as well as cannedproducts.

 

**RegulatoryMatters and Government Contracts**

 

For the year endedDecember 31, 2005, 81% of our net sales were derived from contracts withthe U.S. Government or U.S. Government agencies.  Under U.S. Governmentregulations, certain costs, including certain financing costs, portions ofresearch and development costs, lobbying expenses, certain types of legalexpenses and certain marketing expenses related to the preparation of bids andproposals, are not allowed for pricing purposes.  The U.S. Government alsoregulates the methods under which costs are allocated to U.S. Governmentcontracts.

 

The U.S. Government hassignificant unilateral rights under our contracts, including the ability tosuspend us from receiving new contracts pending resolution of allegedviolations of procurement laws or regulations, terminate existing contracts,reduce the value of existing contracts through partial termination

 

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and audit ourcontract-related costs and fees, including allocated indirect costs.  Eachof our U.S. Government contracts can be terminated by the U.S. Governmenteither for its convenience or if we default under the contract. Termination for convenience provisions provide only for our recovery of costsincurred or committed, settlement expenses and profit on the work completedprior to termination.  Under termination for default provisions, we areliable for excess costs incurred by the U.S. Government in procuringundelivered items from another source.

 

**IntellectualProperty**

 

We have registered the namesHomestyle Express®, Great Food ExpressÔ and Asian Style SelectionsÔ and certain other names used by our productsas trademarks or service marks with the U.S. Patent and Trademark Office. We are not aware of any existing infringing uses that could materially affectour business.

 

We believe that ourtrademarks and service marks are valuable to the operation of our business andare important to our marketing strategy.  Accordingly, we anticipate renewingand otherwise maintaining our trademarks and service marks as may berequired.  Trademarks and service marks are generally valid as long asthey are in use and their registrations are properly maintained. Registrations of trademarks and service marks can generally be renewedindefinitely as long as the marks are in use.

 

**Employees**

 

We employ individuals with ahigh level of food industry experience and production expertise to ensureproduct quality and operational efficiency.  As of December 31, 2005, wehad approximately 768 full-time employees.  Approximately 84% of ouremployees are engaged in production, 1% of our employees are engaged inresearch and development and 15% of our employees are engaged in sales,marketing, product support and general administration.  We rely on asubstantial number of temporary employees on a continuing basis at our McAllen,Texas facilities, and during surge production periods at our Cincinnati, Ohiofacilities.  None of our workforce is unionized.  We believe that we generallyhave good relations with our employees.

 

**EnvironmentalMatters**

 

Our operations include (andthose of past operators at our sites have included) the use, generation anddisposal of hazardous materials.  We are subject to various U.S. federal,state and foreign laws and regulations relating to the protection of theenvironment, including those governing the discharge of pollutants into the airand water, the management and disposal of hazardous substances and wastes, thecleanup of contaminated sites and the maintenance of a safe workplace.  Wecould incur substantial costs, including cleanup costs, civil or criminal finesor sanctions and third-party claims for property damage or personal injury, asa result of violations of or liabilities under environmental laws andregulations or the non-compliance with the environmental permits required atour facilities.

 

These laws, regulations andpermits also could require the installation of costly pollution controlequipment or operational changes to limit pollution emissions or decrease thelikelihood of accidental releases of hazardous substances.  In addition,new laws and regulations, stricter enforcement of existing laws andregulations, the discovery of previously unknown contamination at our or other sitesor the imposition of new cleanup requirements could require us to incur futurecosts that would have a negative effect on our results of operations or cashflow.

 

We believe that we have beenand are in substantial compliance with environmental laws and regulations andthat we have no liabilities under environmental requirements that we wouldexpect to have a material adverse effect on our business, results of operationsor financial condition.  We have not incurred, nor do we expect to incur, materialcosts relating to environmental compliance.

 

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**Item 1A:  Risk Factors**

 

Investors should carefullyconsider the following risks and the other information in this report and ourother filings with the SEC before deciding to invest in our company or tomaintain or increase any investment.  The risks and uncertaintiesdescribed below are not the only ones facing our company.  Additionalrisks and uncertainties may also adversely impact and impair our business. If any of the following risks actually occur, it could have a material adverseeffect on our business, results of operations, or financial condition and theprice of our company’s securities could decline and investors might lose all orpart of their investment.

 

**RisksRelated to Our Indebtedness**

 

***Our substantial level of indebtedness could adversely affect ourfinancial condition and prevent us from fulfilling our obligations under ourindebtedness.***

 

We have substantialindebtedness.  As of December 31, 2005, we had approximately$125.0 million of secured indebtedness and $29.3 million of unsecuredindebtedness.  Our high level of indebtedness could have importantconsequences to you, including the following:

 

•                  our ability to obtain additional financing forworking capital, capital expenditures, acquisitions or general corporatepurposes may be impaired;

 

•                  we must use a substantial portion of our cashflow from operations to pay interest on the exchange notes and, to the extentincurred, our other indebtedness, which will reduce the funds available to usfor operations and other purposes;

 

•                  our high level of indebtedness could place usat a competitive disadvantage compared to our competitors that may haveproportionately less debt;

 

•                  our flexibility in planning for, or reactingto, changes in our business and the industry in which we operate may belimited; and

 

•                  our high level of indebtedness makes us morevulnerable to economic downturns and adverse developments in our business.

 

We expect to obtain themoney to pay our expenses and to pay the amounts due under the notes primarilyfrom our operations, borrowings under our credit facility and through theissuance of additional PIK Notes.  Our ability to meet our expensesand make payments under the exchange notes depends on our future performance,which will be affected by financial, business, economic and other factors, manyof which we cannot control.  Our business may not generate sufficient cashflow from operations in the future and our currently anticipated growth inrevenue and cash flow may not be realized, either or both of which could resultin our being unable to repay indebtedness, including the exchange notes, or tofund other liquidity needs.  If we are unable to fund our capital needs,we may be required to refinance all or part of our then existing debt on termsthat may not be advantageous to you, sell assets, reduce or delay capitalinvestment or borrow more money.  We cannot assure you that we will beable to accomplish any of these alternatives on terms acceptable to us, or atall.  The terms of existing or future debt agreements may restrict us fromadopting any of these alternatives.  In addition, we cannot depend onadditional capital contributions or other investments from our stockholders andaffiliates.  The failure to generate sufficient cash flow or to achieveany of these alternatives could materially adversely affect the value of theexchange notes and our ability to pay the amounts due under the exchange notes.

 

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***Despite our current indebtednesslevels, we may still be able to incur substantially more debt. This couldexacerbate further the risks associated with our substantial leverage.***

 

Wemay be able to incur substantial additional indebtedness, including additionalsecured indebtedness, in the future. The terms of the indenture governing theexchange notes restrict, but do not completely prohibit, us from doing so. Ourcredit facility permits additional borrowings up to $25 million and all ofthose borrowings will rank equal in right of payment to the exchange notes andguarantees. We may draw down additional amounts under our credit facilityto provide funds for operations. If new debt is added to our current debtlevels, the related risks that we now face could intensify. See Part II,Item 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations —Liquidity and Capital Resources”.

 

***Our ability to make payments underthe notes and to service our other debt may depend on cash flow from oursubsidiaries.***

 

AlthoughTWC Holding LLC is a holding company and not an operating company, oursubsidiaries hold material assets. Consequently, we may depend ondistributions or other intercompany transfers from our subsidiaries to makepayments under the exchange notes and our other debt. In addition,distributions and intercompany transfers to us from our subsidiaries willdepend on:

 

•                  their earnings;

 

•                  covenants contained in our and their debtagreements, including the exchange notes and our credit facility;

 

•                  covenants contained in other agreements towhich we or our subsidiaries are or may become subject;

 

•                  business and tax considerations; and

 

•                  applicable law, including laws regarding thepayment of dividends and distributions and fraudulent transfer laws (asdiscussed below).

 

Theoperating results of our subsidiaries at any given time may not besufficient to make distributions or other payments to us or that anydistributions and/or payments will be adequate to pay any amounts due under thenotes or our other indebtedness.

 

***The indenture governing the notesand our credit facility impose significant operating and financialrestrictions, which may prevent us from pursuing certain businessopportunities and taking certain actions.***

 

Theindenture governing the notes and our credit facility impose significantoperating and financial restrictions on us. These restrictions limit orprohibit, among other things, our ability to:

 

•                  incur additional indebtedness;

 

•                  repay indebtedness prior to statedmaturities;

 

•                  pay dividends on or redeem or repurchase ourstock;

 

•                  issue capital stock;

 

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•                  make investments;

 

•                  create liens;

 

•                  sell certain assets or merge with or intoother companies;

 

•                  enter into certain transactions withstockholders and affiliates;

 

•                  sell stock in our subsidiaries;

 

•                  restrict dividends, distributions or otherpayments from our subsidiaries; and

 

•                  otherwise conduct necessary corporateactivities.

 

Inaddition, our credit facility also contains certain restrictions and noticeprovisions relating to changes in our senior management, and requires us tomeet certain financial ratios and financial condition tests.

 

Eventsbeyond our control can affect our ability to meet these financial ratios andfinancial condition tests and to comply with other provisions governing ourcredit facility. Our failure to comply with these obligations could cause anevent of default under our credit facility. If an event of default occurs underour credit facility, our lenders could elect to declare all amounts outstandingand accrued and unpaid interest under our credit facility to be immediatelydue, and the lenders thereafter could foreclose upon the assets securing ourcredit facility. An event of default under our credit facility could result inan event of default under our other debt instruments, including the notes. Inthat event, we may not have sufficient assets to repay all of ourobligations, including the notes. We may incur other indebtedness in thefuture that may contain financial or other covenants more restrictive thanthose applicable to our credit facility or the indenture governing the notesand on other unfavorable terms.

 

***To service our indebtedness, we willrequire a significant amount of cash, and our ability to generate cash dependson many factors beyond our control.***

 

Ourprincipal sources of liquidity are cash flow generated from operations andborrowings under our credit facility. Our ability to make payments on and to refinanceour indebtedness, including the exchange notes, and to fund planned capitalexpenditures will depend on our ability to generate cash in the future. This,to a certain extent, is subject to general economic, financial, competitive,legislative, regulatory and other factors that are beyond our control.

 

Ourbusiness may not generate cash flow from operations, that currentlyanticipated cost savings and operating improvements may not be realized onschedule and that future borrowings may not be available to us underour credit facility in an amount sufficient to enable us to pay ourindebtedness, including the exchange notes, and to fund our other liquidityneeds. If we are not able to generate sufficient cash flow or borrow under ourcredit facility to provide funds for operations, we may need to refinanceor restructure all or a portion of our indebtedness, including the notes, on orbefore maturity, sell assets, reduce or delay capital investments or seek toraise additional capital. We may not be able to implement one or more ofthese alternatives, on terms acceptable to us or at all. The terms of existingor future debt agreements may restrict us from adopting any of thesealternatives. In addition, we cannot depend on additional capital contributionsor other investments from our stockholders and affiliates. The failure togenerate sufficient cash flow or to successfully achieve any of thesealternatives could materially adversely affect the value of the exchange notesand our ability to pay the amounts due under the exchange notes.

 

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***The co-issuers are the sole obligorsunder the Senior PIK notes and they may not have access to the cash flowand other assets of their subsidiaries that may be needed to make paymenton the exchange notes.***

 

Theco-issuers’ operations are conducted through their subsidiaries, and theirability to make payment on the exchange notes is dependent on the earnings andthe distribution of funds from their subsidiaries. However, none of theco-issuers’ subsidiaries will guarantee the exchange notes, and the co-issuers’subsidiaries are not obligated to make funds available to the co-issuers forpayment on the exchange notes. In addition, the terms of the indenturegoverning the Wornick Notes and the “Wornick credit facility,” a senior securedrevolving working capital credit facility of up to $25 million,significantly restrict Wornick’s and the co-issuers’ other subsidiaries frompaying dividends and otherwise transferring assets to the co-issuers.Furthermore, the co-issuers’ subsidiaries will be permitted under the terms ofthe Wornick credit facility and other indebtedness to incur additionalindebtedness that may severely restrict or prohibit the making ofdistributions, the payment of dividends or the making of loans by suchsubsidiaries to the co-issuers.

 

***The Senior PIK notes arestructurally subordinated to the debt and liabilities of the co-issuers’subsidiaries, and are effectively subordinated to any of the co-issuers’ futuresecured debt.***

 

Theexchange notes are structurally subordinate to all debt and liabilities,including trade payables, of the co-issuers’ subsidiaries. You are onlyentitled to participate with all other holders of the co-issuers’ indebtednessand liabilities in the assets of the co-issuers’ subsidiaries remaining afterthe co-issuers’ subsidiaries have paid all of their debt and liabilities. Theco-issuers’ subsidiaries may not have sufficient funds or assets to permitpayments to the co-issuers in amounts sufficient to permit the co-issuers topay all or any portion of their indebtedness and other obligations, includingtheir obligations on the exchange notes.

 

Theindenture governing the exchange notes permits the co-issuers and theirsubsidiaries to incur additional indebtedness, including secured indebtedness,under certain circumstances. If the co-issuers incur any secured debt in thefuture, holders of such secured debt will have claims that are prior to yourclaims as holders of the exchange notes to the extent of the value of theassets securing that other debt. In the event of bankruptcy, liquidation orreorganization or similar proceeding relating to the co-issuers, holders ofsecured debt will have a prior claim to the assets that constitute theircollateral.

 

**Risks Related to Our Business**

 

***We rely on sales to U.S. Governmententities. A loss of our contracts with the U.S. Government or a reduction ofsales under those contracts would have a material adverse effect on ourbusiness.***

 

Oursales are predominantly derived from three contracts with the DSCP, which isresponsible for the procurement of military field rations for the DoD. Approximately82.6% and 81.4% of our sales for the years ended December 31, 2004 and December 31,2005, respectively, were made directly or indirectly to the U.S. Government. Approximately54.1%, 23.7% and 3.7% of our sales for the year ended December 31, 2004and approximately 55.2%, 21.7% and 2.4% of our sales for the year ended December 31,2005 were derived from our MRE program contract, UGR-A program and Tray-packprogram, respectively. The loss of all or a substantial portion of our sales tothe U.S. Government would have a material adverse effect on our results ofoperations and cash flow.

 

***Our U.S. Government contractscontain unfavorable provisions and are subject to audit.***

 

Weare subject to business risks peculiar to the defense industry, including theability of the U.S. Government to unilaterally:

 

•                  suspend us from receiving new contractspending resolution of alleged violations of procurement laws or regulations;

 

17

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•                  terminate existing contracts;

 

•                  reduce the value of existing contractsthrough partial termination; and

 

•                  audit our contract-related costs and fees,including allocated indirect costs.

 

Allof our U.S. Government contracts can be terminated by the U.S. Governmenteither for its convenience or if we default under the contract. Termination forconvenience provisions provide only for our recovery of costs incurred orcommitted, settlement expenses and profit on the work completed prior totermination. Under termination for default provisions, the contractor is liablefor excess costs incurred by the U.S. Government in procuring undelivered itemsfrom another source.

 

TheU.S. Government periodically reviews our performance on its contracts and, atits discretion, may audit the costs incurred by us with respect to itscontracts. Based on the results of such audits, the U.S. Government may adjustour contract-related costs and fees, including allocated indirect costs. Inaddition, under U.S. Government purchasing regulations, some of our costs,including most financing costs, amortization of goodwill, portions of researchand development costs and certain marketing expenses, may not bereimbursable. Further, as a U.S. Government contractor, we are subject toinvestigation, legal action and liabilities that would not apply if we werecontracting with a non-governmental purchaser.

 

***Our strategy depends on continuedoutsourcing by our government and commercial customers.***

 

Ourstrategy to increase sales depends in part on the continued outsourcing ofproducts and programs by the U.S. Government and our commercial customers. Ifthe U.S. Government or our commercial customers decide to stop outsourcingproducts and programs or if they discontinue products and programs that theyare currently outsourcing, it would have a material adverse effect on ourresults of operations and financial condition.

 

***A reduction in the U.S. defensebudget or a change in our relationship with the U.S. Government could have amaterial adverse effect on our business.***

 

Thefunding of defense programs competes with non-defense spending by the U.S.Government. Budget decisions made by the U.S. Government are outside of ourcontrol and have long-term consequences for our business. A substantial shiftin government defense spending to programs in which we are not involved or amaterial reduction in U.S. Government defense spending generally would have amaterial adverse effect on our results of operations and financial condition.

 

Inaddition, any significant disruption or deterioration of our relationship withthe U.S. Government would significantly reduce our revenue. Our competitors continuouslyengage in efforts to expand their business relationships with the U.S.Government to our detriment and are likely to continue their efforts in thefuture.

 

***Government contracts are subject tocompetitive bidding. If we are unable to successfully compete in the biddingprocess or if we fail to receive renewal or follow-on contracts, our results ofoperations will suffer.***

 

Weobtain many of our U.S. Government contracts through sealed competitive bids,unless an exemption from full and open competition under federal procurementlaws is applicable. Under the regulations governing sealed bidding, thequalified bidder with the lowest price and the price-related factors mostadvantageous to the U.S. Government is generally awarded the contract. We may notwin competitively awarded contracts and awarded contracts we do win may notbe profitable. We are also subject to risks associated with the substantialtime and effort required to prepare bids and proposals for competitively

 

18

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awardedcontracts that may not be awarded to us. In addition, our bids for the MREcontract have not been subject to full and open competition and have beenlimited to us and two other suppliers. Our ability to continue to win a significantshare of the MRE program award could suffer if the bids were subject to fulland open competition.

 

Renewaland follow-on contracts are important because our contracts are for fixed terms.These terms vary from shorter than one year to over five years, particularlyfor contracts with options. The typical term of our contracts with the U.S.Government is between one and five years. The loss of revenues from ourpossible failure to obtain renewal or follow-on contracts may besignificant because our U.S. Government contracts account for a substantialportion of our revenues.

 

***Our fixed-price contracts couldsubject us to losses in the event that we have cost overruns.***

 

Approximately59.7% and 58.9% of our net sales for the years ended December 31, 2005 andDecember 31, 2004, respectively, were generated through fixed-pricecontracts with the U.S. Government. In a fixed-price contract, the price is notsubject to adjustment based on cost incurred to perform the required workunder the contract. Therefore, we fully absorb cost overruns on fixed-pricecontracts, thereby reducing our profit margin. Cost overruns may result ina loss. Further risks associated with fixed-price contracts include thedifficulty of estimating costs that are related to performance in accordancewith contract specifications and the possibility of obsolescence in connectionwith long-term procurements. We may not be able to accurately estimate thecosts of the ingredients that we use to manufacture our products, as well asthe materials we use to process and package our products, because their priceshave been, and we expect them to continue to be, subject to volatility. Also,any failure to anticipate technical problems, estimate costs accurately orcontrol costs during performance of a contract can reduce our profitability. Underfixed-price contracts, we may not be able to pass price and cost increaseson to our customers, which could have an adverse effect on our financialresults.

 

***Our operating results depend on theU.S. Government’s demand for our food products and that demand can fluctuatesignificantly. Such fluctuations in demand may have a material adverseeffect on our results of operations and financial condition.***

 

Ourresults of operations have fluctuated in the past and may continue tofluctuate in the future as a result of a number of factors, many of which arebeyond our control. These factors may include:

 

•                  the termination of key U.S. Governmentcontracts;

 

•                  the size and timing of new contract awards toreplace completed or expired contracts; and

 

•                  changes in U.S. Department of Defensepolicies and budgetary priorities.

 

Inparticular, there has been an increase in demand for our military food productsassociated with U.S. military operations since September 11, 2001. Our netsales and net income increased beginning in the fourth quarter of 2002 andcontinued through 2005 as a result of the significant increase in militarydemand due to U.S. operations in Iraq and ongoing operations in Afghanistan aswell as the use of our products in disaster relief efforts both within theUnited States and abroad.

 

During2005, orders for our military food products significantly increased relative tocomparable periods in 2004. As a result, our net sales and net income for theyear ended December 31, 2004  Webelieve that the demand for our military food products will decrease modestlyas deployments of U.S. armed forces in Afghanistan and Iraqi decrease and thatour post-war volumes under the new MRE-26-to-30 contract will return over timeto more predictable and steady volume levels. However, demand may notremain at current levels and fluctuations in the military’s demand for our foodproducts may have a material adverse effect on our results of operationsor financial condition.

 

19

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Underour contracts with the DSCP, we may be required to increase our productionto specified agreed maximum levels in times of military surge demand. We havetaken significant measures to ensure that such activity will not require us tocurtail any of our commercial operations. Periods of military surge production may havean adverse effect on our commercial production during such periods, which couldmaterially harm our relationships with our commercial customers.

 

***Our backlog is subject to reductionand cancellation.***

 

Backlogrepresents products or services that our customers have committed by contractto purchase from us and for which we have firm orders and production schedules.A large portion of these commitments is terminable by the customer at will. Ourtotal backlog as of December 31, 2005 was $67.2 million. As of December 31,2005, 70.5% and 29.5% of our backlog was derived from our contracts with theDSCP and our commercial contracts, respectively. Backlog is subject tofluctuations and is not necessarily indicative of future sales. Moreover,cancellations of purchase orders or reductions of product quantities inexisting contracts could substantially and materially reduce backlog and,consequently, future revenues. Our failure to replace canceled or reducedbacklog could result in lower revenues.

 

***We have no redundant productionfacilities. Therefore, the loss of one of our facilities would materiallyadversely affect our production capability.***

 

Eachof our discrete manufacturing operations occurs at one of two facilities withno operating redundancy between the facilities. In particular, virtually all ofour thermostabilization processing is conducted at our Cincinnati facility. Ourleases for these sites expire in 2010. We may lose production capabilityif a natural or other disaster were to occur that affected one of oursignificant facilities or if we were unable to renew an expired lease for anysuch facility. The loss of either manufacturing facility would materiallyadversely affect our production capacity and could have a material adverseeffect on our results of operations or financial condition. Our efforts toconsolidate our McAllen, Texas Assembly operations in the Greater CincinnatiTri-state area could increase this risk.

 

***Governmental regulation may havea negative impact on our business.***

 

Ouroperations and properties are subject to regulation by various governmententities and agencies. As a producer of food products, our operations aresubject to production, packaging, quality, labeling and distribution standards.Our manufacturing, processing and distribution facilities are also subject tovarious workplace regulations. We believe that our current compliance programsadequately address such concerns and that we are in substantial compliance withapplicable laws and regulations. However, compliance with, or any violation of,current and future laws or regulations could require material expenditures orotherwise adversely affect our business and financial results.

 

***Product recalls could have amaterial adverse effect on our business.***

 

Manufacturers,processors and distributors of products in the food industry are sometimes subjectto the recall of their products for a variety of reasons, including for productdefects, such as ingredient contamination, packaging safety and inadequatelabeling disclosure. If any of our products are recalled due to a productdefect or for any other reason, we could be required to incur the expense ofthe recall or the expense of any resulting legal proceeding. Additionally, ifone of our significant products were subject to recall, the image of that brandand our company could be harmed, which could have a material adverse effect onour business.

 

***Food-borne illness incidents couldreduce our sales.***

 

Ourinternal controls and training may not be fully effective in preventingall food-borne illnesses. Some food borne illness incidents could be caused bythird-party food suppliers and transporters outside of our control. Newpathogens resistant to our current precautions may develop in the future,or diseases with long incubation periods could arise, that could give rise toclaims or allegations on a retroactive basis. One

 

20

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ormore instances of food-borne illness in one of our products could negativelyaffect our product sales, especially if highly publicized, even if it werelater determined that the illness was wrongly attributed to one of ourproducts.

 

***Product liability claims could havea material adverse effect on our business.***

 

Weface an inherent risk of exposure to product liability claims if any of theproducts we sell cause injury or illness. We have obtained liability insurancefor product liability claims. Insurance may not continue to be availableat a reasonable cost, and any insurance that we obtain may not be adequateto fully cover product liability claims against us. We generally obtaincontractual indemnification from parties supplying our products, but this form ofindemnification is limited, as a practical matter, to the creditworthiness andfinancial resources of the indemnifying party. If we do not have adequateinsurance or contractual indemnification available, losses associated withproduct liability claims could have a material adverse effect on our business,operating results and financial condition.

 

***Our industry has low profit marginsand is sensitive to national and regional economic conditions and otherfactors.***

 

Thefoodservice industry is characterized by relatively low profit margins. Theprices at which we sell some of our products change with the cost of theunderlying products. As a result, our profit levels may be reduced duringperiods of decreased prices for some of our products, even though our grossprofit percentage on those products may remain relatively constant. Areduction in the price of our products could have a material adverse effect onour business, operating results and financial condition. The foodservicedistribution industry is sensitive to national and regional economic conditions.Economic downturns may reduce consumer spending at the businesses andinstitutions that we supply. This reduction in spending could have an adverseimpact on the demand for our commercial food products and result in a materialadverse effect on our operating results.

 

Ouroperating results also are particularly sensitive to, and may be adverselyaffected by, difficulty in collecting accounts receivable, maintaininginventory control, and responding to competitive price pressures, severeweather conditions and unexpected increases in fuel or othertransportation-related costs. We cannot assure you that one or more of thesefactors will not adversely affect future operating results.

 

***Veritas Capital controls us and may haveconflicts of interest with other holders of our securities, including theexchange notes.***

 

VeritasCapital Management is able to control all matters presented to our members andstockholders for approval, including election and removal of our directors andchange of control transactions. The Veritas Capital Fund II, L.P. controls thevoting of the shares of our membership interests and our common stock held by usand, in turn, is controlled by Veritas Capital Management. Veritas CapitalManagement, some members of which are members of our board of directors, hassignificant influence on our overall operations and strategy. We cannot assureyou that the interests of The Veritas Capital Fund II, L.P. and Veritas CapitalManagement or any of their affiliates will coincide with the interests of theholders of our other securities. To the extent that conflicts of interest may arise,The Veritas Capital Fund II, L.P., Veritas Capital Management or any of theiraffiliates may resolve those conflicts in a manner adverse to us or to youor other holders of our securities.

 

***We depend on the services of keyexecutives and technical and other personnel, the loss of whom could materiallyharm our business or reduce our operational effectiveness.***

 

Someof our senior executives are important to our success because they have beeninstrumental in setting our strategic direction, operating our business,identifying, recruiting and training key personnel, identifying opportunitiesand arranging necessary financing. Losing the services of any of theseindividuals could adversely affect our business until a suitable replacementcould be found. We believe that they could not quickly be replaced withexecutives of equal experience and capabilities. Our Chief Executive Officer

 

21

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isthe only executive bound by an employment agreement with us, our otherexecutives are not presently bound by employment agreements with us. We donot maintain key person life insurance policies on any of our executives. See Part III,Item 10, “Directors and Executive Officers of the Registrant.”

 

Thereis a continuing demand for qualified technical personnel, and we believe thatour future growth and success will depend upon our ability to attract, trainand retain such personnel. Competition for personnel in our industry isintense, and there are a limited number of persons with knowledge of, andexperience in, this industry. Although we currently experience relatively lowrates of turnover for our technical personnel, the rate of turnover may increasein the future. We rely on a substantial number of temporary employees on acontinuing basis at our McAllen, Texas facilities, and during surge productionperiods at our Cincinnati, Ohio facilities. An inability to attract or maintaina sufficient number of technical or temporary personnel could have a materialadverse effect on our contract performance or on our ability to capitalize onmarket opportunities.

 

***Our failure to enforce and maintainour trademarks could adversely affect our ability to establish and maintainbrand awareness.***

 

Wehave registered the names Homestyle Express®, Great Food ExpressÔ and Asian Style SelectionsÔ and certain other names used by our productsas trademarks or service marks with the U.S. Patent and Trademark Office. Themeasures we have taken to protect our intellectual property in the UnitedStates and foreign countries may not be adequate. In addition, the laws ofsome foreign countries do not protect intellectual property rights to the sameextent as the laws of the United States. If our efforts to protect ourintellectual property are not adequate, or if any third party misappropriatesor infringes on our intellectual property, either in print or on the Internet,the value of our brands may be harmed, which could have a material adverseeffect on our business, including the failure of our brands and brandedproducts to achieve and maintain market acceptance.

 

***Environmental laws and regulations may subjectus to significant costs and liabilities.***

 

Ouroperations include (and those of past operators at our sites have included) theuse, generation and disposal of hazardous materials. We are subject to variousU.S. federal, state and local laws and regulations relating to the protectionof the environment, including those governing the discharge of pollutants intothe air and water, the management and disposal of hazardous substances andwastes, the cleanup of contaminated sites and the maintenance of a safeworkplace. We could incur substantial costs, including cleanup costs, civil orcriminal fines or sanctions and third-party claims for property damage orpersonal injury, as a result of violations of or liabilities underenvironmental laws and regulations or the non-compliance with the environmentalpermits required at our facilities.

 

Theselaws, regulations and permits also could require the installation of costlypollution control equipment or operational changes to limit pollution emissionsor decrease the likelihood of accidental releases of hazardous substances. Inaddition, new laws and regulations, stricter enforcement of existing laws andregulations, the discovery of previously unknown contamination at our or othersites or the imposition of new cleanup requirements could require us to incurfuture costs that would have a negative effect on our results of operations orcash flow.

 

**Item1B: Unresolved Staff Comments**

 

None.

 

**Item 2: Properties**

## ** **

OurOperating Company leases all of the real property that we use in conducting ourbusiness. The following table presents certain information on our operatingproperties as of December 31, 2005:

 

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| **Location**                         | ** ** | **Sq. Feet** | ** ** | **Use**                 | ** ** | **Lease Experation**   |
|--------------------------------------|------------|--------------|------------|-------------------------|------------|------------------------|
| 4701 Creek  Road, Suite 200     |       |         |       |                    |       |                   |
| Cincinnati,  Ohio                    |       | 17,500       |       | Corporate  Headquarters |       | June 30, 2011     |
|                                 |       |         |       |                    |       |                   |
| 10825 Kenwood  Road                  |       |         |       | Food  manufacturing,    |       |                   |
| Cincinnati,  Ohio                    |       | 182,000      |       | office Space            |       | December 31, 2010 |
|                                 |       |         |       |                    |       |                   |
|                                 |       |         |       | Sales,  marketing,      |       |                   |
| 4700-4750  Creek Road                |       |         |       | warehouse and           |       |                   |
| Cincinnati,  Ohio                    |       | 156,200      |       | refrigerated  assembly  |       | July 31, 2008     |
|                                 |       |         |       |                    |       |                   |
| 200 North 1st  Street                |       |         |       | MRE assembly,  sub-     |       |                   |
| McAllen, Texas                       |       | 143,352      |       | assembly,               |       | December 31, 2010 |
|                                 |       |         |       |                    |       |                   |
| 5700 S.  International Parkway       |       |         |       | UGR-A raw  material     |       |                   |
| McAllen, Texas                       |       | 171,200      |       | storage and  assembly   |       | February 28, 2008 |
|                                 |       |         |       |                    |       |                   |
| 5000 George  McVay Drive             |       |         |       | MRE raw  materials      |       |                   |
| McAllen, Texas                       |       | 61,200       |       | storage and  receiving  |       | February 28, 2006 |
|                                 |       |         |       |                    |       |                   |
| Kenwood Road                         |       |         |       |                    |       |                   |
| Cincinnati,  Ohio                    |       | 49,000       |       | Parking lot             |       | December 17, 2010 |
|                                 |       |         |       |                    |       |                   |
|                                 |       |         |       | UGR-A frozen  raw       |       |                   |
| 310 East Beech  Street               |       |         |       | material  storage and   |       |                   |
| McAllen, Texas                       |       | 16,800       |       | assembly                |       | month-to-month         |
|                                 |       |         |       |                    |       |                   |
| 1512 “C”  Mid-Cities Drive |       |         |       |                    |       |                   |
| Pharr, Texas                         |       | 5,700        |       | Equipment  storage      |       | month-to-month         |
|                                 |       |         |       |                    |       |                   |
| 307 E. Earling                       |       |         |       |                    |       |                   |
| Pharr, Texas                         |       | 4,600        |       | Document  storage       |       | December 31, 2010 |

 

Managementconsiders our leased properties to be adequate for our needs and believes thatall of our leased properties are well maintained and in good condition. Inaddition to these properties, we have rented space from time to time at variousthird party storage facilities on a short-term and as needed basis. Managementalso believes that there are adequate facilities available for lease or rent inthe event that either the productive capacities of our manufacturing facilitiesneed to be expanded or a current lease of a facility expires.

 

Thelenders under our credit facility have a security interest and lien in ourleasehold interests in the real property that we lease.

 

## **Item 3:**          Legal Proceedings

## ** **

Weare a defendant in various legal actions arising in the normal course ofbusiness, the outcomes of which, in the opinion of management, neitherindividually nor in the aggregate are likely to result in a material adverseeffect on our business, results of operations, financial position or cashflows.

 

## **Item 4:**          Submission of Matters to a Vote of Security Holders

## ** **

Therewere no matters submitted to a vote of security holders during the fourthquarter of fiscal year 2005.

 

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**PART II.**

 

## **Item 5:**          Market For Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities

## ** **

TWCHolding LLC has two classes of membership interests, Class A interests andClass B interests. Veritas Capital Fund II, L.P. owns 94.7% of the Class Amembership interests of TWC Holding LLC. Certain members of Wornick’smanagement and outside directors have received Class B interests. For moreinformation about the ownership of TWC Holding LLC, see Part III, Item 12,“Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.”

 

Wehave not paid any dividend on our common stock to date. Our working capitalfacility and the notes contain restrictions on our ability to pay dividends onour common stock. See Part II, Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and CapitalResources—Long Term Debt Expenditures,” and Note 6 to our financial statements.The payment of dividends on our common stock is also subject to therequirements of Delaware law. We have not paid any dividends on our commonstock since our inception in November 2003.

 

## **Item 6:**          Selected Financial Data

## ** **

Thefollowing table presents the selected consolidated financial data of TheWornick Company, a Nevada corporation (the “Predecessor”), and its consolidatedsubsidiaries as of and for each of the three fiscal years ended December 31,2001, 2002 and 2003 and the six months ended June 30, 2004. The selectedconsolidated financial data as of December 31, 2002 and 2003, and for theyears ended December 31, 2001, 2002 and 2003 and the six months ended June 30,2004 have been derived from the Predecessor’s audited historical financialstatements for the respective periods.

 

Thetable also includes the selected consolidated financial data of TWCHolding LLC, a Delaware corporation (the “Successor”) and its consolidatedsubsidiaries as of and for the six months ended December 31, 2004 and forthe fiscal year ended December 31, 2005. The selected consolidatedfinancial data of the Successor as of December 31, 2005 and 2004 and forthe year ended December 31, 2005 and for the period from July 1, 2004through December 31, 2004 have been derived from, and should be readtogether with, the Successor’s audited financial statements for such period.

 

Theselected consolidated financial data set forth below are not necessarilyindicative of the results of future operations and should be read together withPart II, Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” and our Consolidated FinancialStatements.

 

Asa result of the Transactions and related financings, the historicalconsolidated financial data of the Predecessor may not be comparable tothe Successor’s consolidated financial data. Most notably, the liquidityposition of the Successor is substantially different than that of the Predecessor,including the overall level of debt and resulting amount of interest expense infiscal periods subsequent to June 30, 2004.

 

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| ** **                                    | ** ** | ** **                                             | ** ** | **Successor**                                             | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                    | ** ** | **Predecessor**                                        | ** ** | **Six-Month  Period Ended  December 31,  2004** | ** ** | **Fiscal Year  Ended  December 31,  2005** | ** ** |
| ** **                                    | ** ** | **Fiscal Year Ended December 31,** | ** ** | **Six-Month  Period Ended**                          | ** ** | ** ** |
| **(dollars in thousands)**          | ** ** | **2001**                                               | ** ** | **2002**                                                  | ** ** | **2003** | ** ** | **June 30, 2004** | ** ** | ** ** |
| **Income  Statement Data:**                   | ** ** | ** **                                             | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $                                                      | 94,191     |                                                      | $          | 130,434 |   | $ | 318,370 |   | $ | 80,924 |   | $ | 100,381 |   | $ | 257,878 |   |
| Cost of  sales                                |       | 77,419                                                 |       | 108,418                                                   |       | 265,447 |   | 67,753 |   | 83,308 |   | 210,897 |   |
|                                          |       |                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| Gross profit                                  |       | 16,772                                                 |       | 22,016                                                    |       | 52,923 |   | 13,171 |   | 17,073 |   | 46,981 |   |
| Selling,  general and administrative expenses |       | 11,598                                                 |       | 21,043                                                    |       | 27,008 |   | 12,459 |   | 9,072 |   | 23,461 |   |
|                                          |       |                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| Operating  profit                             |       | 5,174                                                  |       | 973                                                       |       | 25,915 |   | 712 |   | 8,001 |   | 23,521 |   |
| Other income  (expense):                      |       |                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| Interest  expense                             |       | (1,012                                                 | )          | (671                                                      | )          | (537 | ) | (100 | ) | (7,151 | ) | (18,073 | ) |
| Interest  income                              |       | 132                                                    |       | 99                                                        |       | 244 |   | 507 |   | 87 |   | 210 |   |
| Other income                                  |       | 781                                                    |       | 849                                                       |       | 980 |   | 369 |   | 4 |   | (201 | ) |
|                                          |       |                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| Total other  income (expense)                 |       | (99                                                    | )          | 277                                                       |       | 687 |   | 776 |   | (7,060 | ) | (18,064 | ) |
|                                          |       |                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| Income  before income taxes                   |       | 5,076                                                  |       | 1,250                                                     |       | 26,602 |   | 1,488 |   | 941 |   | 5,456 |   |
| Income tax  expense                           |       | 278                                                    |       | (31                                                       | )          | 439 |   | 41 |   | 964 |   | 2,633 |   |
|                                          |       |                                                   |       |                                                      |       |   |   |   |   |   |   |   |   |
| Net income                                    |       | $                                                      | 4,797      |                                                      | $          | 1,281 |   | $ | 26,163 |   | $ | 1,447 |   | $ | (23 | ) | $ | 2,824 |   |

 

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| ** **                              | ** ** | **Predecessor**               | ** ** | **Successor**                 | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **At December 31,** | ** ** | **At December 31,** | ** ** |
| **(dollars in Thousands)**    | ** ** | **2001**                      | ** ** | **2002**                      | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Selected Balance sheet data**         |       |                          |       |                          |       |   |   |   |   |   |   |
| Cash and  cash equivalents              |       | $                             | 2,264      |                          | $          | 1,042 |   | $ | 5,291 |   | $ | 3,289 |   | 17,335 |   |
| Investments                             |       | 929                           |       | 3,000                         |       | 8,993 |   | — |   | — |   |
| Property,  plant and equipment, net     |       | 10,448                        |       | 14,670                        |       | 21,718 |   | 32,794 |   | 42,914 |   |
| Total assets                            |       | 43,407                        |       | 63,698                        |       | 86,709 |   | 180,522 |   | 211,542 |   |
|                                    |       |                          |       |                          |       |   |   |   |   |   |   |
| Total debt  (excluding book overdrafts) |       | 14,628                        |       | 18,175                        |       | 4,993 |   | 125,000 |   | 154,336 |   |
| Total equity                            |       | 17,677                        |       | 23,499                        |       | 57,155 |   | 37,623 |   | 17,071 |   |
|                                         |            |                               |            |                               |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | **Predecessor**                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | ** **                                             | ** ** | ** **        | ** ** | ** **            | ** ** | **Six-Month** | ** ** | **Successor** | ** ** |
| ** **                                     | ** ** | ** **                                             | ** ** | ** **        | ** ** | ** **            | ** ** | **Period** | ** ** | **Six-Month** | ** ** | **Fiscal Year** | ** ** |
| ** **                                     | ** ** | ** **                                             | ** ** | ** **        | ** ** | ** **            | ** ** | **Ended** | ** ** | **Period Ended** | ** ** | **Ended** | ** ** |
| ** **                                     | ** ** | **Fiscal Year Ended December 31,** | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| **(dollars in thousands)**           | ** ** | **2001**                                               | ** ** | **2002**          | ** ** | **2003**              | ** ** | **2004** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Other  financial data:**                     |       |                                                   |       |              |       |                  |       |   |   |   |   |   |   |
| Depreciation  of property, plant and equipment |       | $                                                      | 1,223      |              | $          | 1,632                 |       | $ | 2,300 |   | $ | 1,387 |   | $ | 1,756 |   | 3,926 |   |
| Goodwill  amortization                         |       | 775                                                    |       | —            |       | —                |       | — |   | — |   | — |   |
| Captial  expenditures                          |       | 6,225                                                  |       | 6,046             |       | 12,526                |       | 2,383 |   | 4,301 |   | 13,612 |   |
| Net cash  provided by (used in):               |       |                                                   |       |              |       |                  |       |   |   |   |   |   |   |
| Operating  activities                          |       | 6,894                                                  |       | 2,933             |       | 34,552                |       | (472 | ) | 10,125 |   | 27,626 |   |
| Investing  activities                          |       | (6,030                                                 | )          | (7,863            | )          | (17,708               | )          | (11,792 | ) | (169,336 | ) | (13,612 | ) |
| Financing  activities                          |       | (316                                                   | )          | 3,708             |       | (12,595               | )          | 8,314 |   | 162,500 |   | 32 |   |
| EBITDA (a)                                     |       | 7,953                                                  |       | 3,455             |       | 29,195                |       | 2,468 |   | 12,108 |   | 31,941 |   |
| Adjusted  EBITDA (a)                           |       | 10,323                                                 |       | 15,058            |       | 43,714                |       | 10,473 |   | 14,532 |   | 32,027 |   |
|                                                |            |                                                        |            |                   |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |

 

(a)          The indenture governing the notes contains material covenants thatrequire the calculation of “Consolidated EBITDA,” which we refer to herein asAdjusted EBITDA. We define adjusted EBITDA as EBITDA adjusted to exclude (i) non-recurringcharges related to inventory step-up, (ii) non-recurring transactionexpenses attributable to the acquisition of our business from the PredecessorCompany on June 30, 2004 and (iii) non-cash ESOP charges and otherstock-based compensation expenses incurred by the Predecessor Company and thenon-cash compensation expense relating to the grant of Class B interestsin TWC Holding LLC, to certain of Wornick’s officers and directors. We defineEBITDA as net income (loss) before income tax expense (benefit), interestexpense, net depreciation of property and equipment and amortization ofintangibles. Our management believes that adjusted EBITDA is useful toinvestors in evaluating our operating performance because EBITDA, whicheliminates the effects of income taxes, financing and the accounting effects ofcapital spending, each of which may vary for different companies forreasons unrelated to overall operating performance, and the adjustments made inarriving at adjusted EBITDA, provide information regarding our ability toservice and/or incur debt. EBITDA and adjusted EBITDA are not presentationsmade in accordance with U.S. generally accepted accounting principles, or “U.S.GAAP.”  Accordingly, when analyzing our operating performance, investorsshould not consider 

 

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EBITDA or adjusted EBITDA in isolation or as a substitute for netincome, cash flows from operating activities or other income statement or cashflow statement data prepared in accordance with U.S. GAAP. Our calculation ofadjusted EBITDA is not necessarily comparable to that of other similarly titledmeasures reported by other companies. The calculation of EBITDA and adjustedEBITDA is shown below:

 
| ** **                                                       | ** ** | **Predecessor**                                        | ** ** | **Successor** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------|------------|---------------|------------|
| ** **                                                       | ** ** | ** **                                             | ** ** | ** **    | ** ** | ** ** | ** ** | **Six-month  Period Ended  June 30,  2004** | ** ** | **Six-month  Period Ended  December 31,  2004** | ** ** | **Fiscal Year  Ended  December 31,  2005** | ** ** |
| ** **                                                       | ** ** | ** **                                             | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | **Fiscal Year Ended December 31,** | ** ** |
| **(dollars in thousands)**                             | ** ** | **2001**                                               | ** ** | **2002**      | ** ** | **2003** | ** ** |
|                                                             |       |                                                   |       |          |       |   |   |   |   |   |   |   |   |
| Net income                                                       |       | $                                                      | 4,797      |          | $          | 1,281 |   | $ | 26,163 |   | $ | 1,447 |   | $ | (23 | ) | $ | 2,824 |   |
| Interest  expense (income), net                                  |       | 880                                                    |       | 572           |       | 293 |   | (407 | ) | 7,064 |   | 17,863 |   |
| Income tax  expense (benefit)                                    |       | 278                                                    |       | (31           | )          | 439 |   | 41 |   | 964 |   | 2,633 |   |
| Depreciation  of property and Equipment                          |       | 1,223                                                  |       | 1,632         |       | 2,300 |   | 1,387 |   | 1,756 |   | 3,926 |   |
| Amortization  of intangibles                                     |       | 775                                                    |       | —        |       | — |   | — |   | 2,347 |   | 4,695 |   |
| EBITDA                                                           |       | 7,953                                                  |       | 3,454         |       | 29,195 |   | 2,468 |   | 12,108 |   | 31,941 |   |
| Non-recurring  charges related to inventory step-up              |       | —                                                 |       | —        |       | — |   | — |   | 1,767 |   | — |   |
| Non-recurring  transaction expenses                              |       | —                                                 |       | —        |       | 829 |   | 1,681 |   | 511 |   | — |   |
| Non-cash  charges relating to ESOT compensation expenses         |       | 1,576                                                  |       | 4,541         |       | 7,493 |   | 2,344 |   | — |   | — |   |
| Non-cash  charges relating to stock option compensation expenses |       | 794                                                    |       | 7,063         |       | 5,364 |   | 713 |   | — |   | — |   |
| Other stock  based compensation expenses                         |       | —                                                 |       | —        |       | 833 |   | 3,267 |   | 146 |   | 86 |   |
| Adjusted  EBITDA                                                 |       | $                                                      | 10,323     |          | $          | 15,058 |   | $ | 43,714 |   | $ | 10,473 |   | $ | 14,532 |   | $ | 32,027 |   |

 

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## **Item 7: Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

## ** **

Thefollowing discussion relates to the financial condition and results ofoperations of our Predecessor Company, or the “Predecessor,” as of and for thefiscal years December 31, 2003 and the six months ended June 30, 2004and the financial condition and results of operations of our company, or the “Successor”or the “Company,” as of and for the six months ended December 31, 2004 andas of and for the fiscal year ended December 31, 2005. This section shouldbe read in conjunction with our Consolidated Financial Statements andconsidered with Part I, Item 1A, “Risk Factors”, Part II, Item 7A, “Quantitativeand Qualitative Disclosures About Market Risk” and “Cautionary StatementsRegarding Forward Looking Statements,” which precedes Part I, Item 1above.

 

Asa result of the acquisition transaction as described in Note 2 to ourConsolidated Financial Statements and elsewhere in this filing we have combinedthe results of the Predecessor for the six months ended June 30, 2004 andthe Company for the six months ended December 31, 2004 in the discussionbelow in order to provide investors more meaningful period-to-periodcomparisons. However, as a result of the acquisition transaction and relatedfinancings, the historical consolidated financial and other data of thePredecessor may not be comparable to the Company’s financial data. Mostnotably, the liquidity position of the Company is substantially different thanthat of the Predecessor, including the overall level of debt and resultingamount of interest expense in fiscal periods subsequent to June 30, 2004. Inaddition, as a result of the acquisition transaction, a new basis wasestablished as of July 1, 2004 for each of our assets. Accordingly, thecombined pro forma financial information for the twelve months ended December 31,2004 combines results of operations under two separate bases of accounting, thePredecessor’s basis and the Successor’s basis.

 

Wehave combined the audited financial information for the six months ended June 30,2004 of the Predecessor and the six months ended December 31, 2004 of theSuccessor on an unaudited pro forma basis in which we combined the respectiveaudited financial information as originally presented. The pro formainformation provided in the table below in “—Results of Operations” does notpurport to represent what our consolidated results of operations would havebeen if the Company had actually been formed on January 1, 2004, nor havewe made any attempt to either include or exclude expenses or income that wouldhave resulted had the acquisition actually occurred on January 1, 2004.

 

**Executive Overview**

 

Throughour wholly owned subsidiary, Wornick, we are a leading supplier of individualand group military field rations to the DoD. We specialize in the production,packaging and distribution of extended shelf-life, shelf stable and frozenfoods in flexible pouches and semi-rigid containers. With over 30 years ofexperience in the food manufacturing and food processing businesses, we believewe have a reputation for superior quality and service in developing andproducing unique meal solutions for the military and for the consumer andfoodservice markets. We are a primary supplier to the DoD of MREs, UGR-As andthe polymeric trays used in the UGR-H&S program. Some of our othercustomers include Delmonte, Gerber, Kraft, Quaker and the Canadian Ministry ofDefense.

 

Themajority of our net sales are derived from contracts with the DoD, through theDSCP. Sales to the U.S. Government accounted for approximately 89.4% for the yearended December 31, 2003, 82.6% for the pro forma year ended December 31,2004, and 81.4% for the year ended December 31, 2005. Our U.S. Governmentreceivables at December 31, 2004 and 2005, accounted for approximately73.1% and 72.9%, respectively, of our accounts receivable.

 

Salesto the military depend to a significant extent on troop deployment levels,mobilization strategies, training exercise activities and the general level ofthe DoD budget. In 2003, there was a significant increase in military demanddue to U.S. troop deployment in Iraq, Afghanistan and elsewhere, and thisincrease resulted in a significant increase in our net sales for 2003. During2004, orders for our military food products significantly decreased relative tocomparable periods in 2003. During 2005, significant weather driven reliefevents within the United Stated contributed to stronger than expected demandfor our

 

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MREproducts in the fourth quarter. We believe that the demand for our militaryfood products will decrease modestly as deployments of U.S. armed forces inAfghanistan and Iraqi decrease and that our post-war volumes under the newMRE-26-to-30 contract will return over time to more predictable and steady volumelevels.  However, demand may notremain at current levels or fluctuations in the military’s demand for our foodproducts may have a material adverse effect on our results of operationsor financial condition. See Part I, Item 1, “Business—IndustryOutlook—Military.”

 

Weare focused on maintaining our position as the only supplier to participate inall of the U.S. military’s major field feeding programs (MRE, UGR-A andUGR-H&S), and we seek to increase our participation in these programs asthe DSCP continues to outsource production activities that are currentlyperformed by the U.S. Government. Our U.S. Government contracts typically fallinto two categories, fixed-price contracts and indefinite delivery, indefinitequantity contracts. In a fixed-price contract, the price is based on apre-determined rate and is not subject to adjustment based on the actual costsincurred, except for key commodity items which are priced according to industryindexes. Although our fixed-price contracts generally permit us to keep profitsif costs are less than projected, we bear the risk that increased or unexpectedcosts may reduce profit or cause us to sustain losses on these contracts. Infiscal 2005, we had two primary fixed-price contracts, one for MREs and one forTray-Packs. We expect to complete deliveries against our current MRE-25contract during April 2006 and we anticipate that the new five year MRE-26award will be announced during the same period. Our indefinite delivery,indefinite quantity contract for the UGR-A modules calls for delivery on anorder-by-order basis. Every week, we and other contractors submit updatedcomponent pricing to the DSCP for the next week to adjust for commercialcomponent price fluctuations. This component price information is used todetermine the price for all UGR-As ordered during the following weekly period. Thiscomponent pricing is subject to retroactive audit adjustment by the DoD,however we believe the magnitude of any such adjustment is insignificant basedprimarily on our pricing policies with the DoD as well as the results of priorDoD audits. For the year ended December 31, 2003 and, on a pro formabasis, 2004, and for the year ended December 31, 2005 we generatedapproximately 49.5%, 58.9% and 59.7% of our net sales from fixed-price contractsand approximately 39.9%, 23.7% and 21.7% from the indefinite delivery,indefinite quantity contract, respectively.

 

In1998, we began to expand our commercial business. As part of ourcommercial expansion, we have established co-manufacturing relationships withleading branded companies such as Delmonte, Gerber, Kraft and Quaker for avariety of extended shelf-life products. See Part I, Item 1, “Business—IndustryOutlook—Commercial.”

 

In2000, we launched our own line of consumer branded food, Homestyle Express. OurHomestyle Express brand was positioned in the consumer retail channel and indistribution with accounts such as Kroger, Walgreen, Publix, and 7-Eleven. Whileconsumer feedback on the Homestyle Express brand was favorable, we were notgenerating the sales and profitability we initially targeted. As such, we madethe strategic decision to discontinue these product lines during fiscal year2005. During fiscal year 2005, we incurred net losses on our sales of HomestyleExpress of approximately $539,000. We anticipate no further charges related tothe discontinuance of this product in fiscal year 2006.

 

Anincreasing amount of our revenues is derived from co-manufacturing contractswith leading branded food companies. Revenues derived from our co-manufacturingcontracts represented approximately 8.0%, 12.3% and 15.7% of our revenues forthe year ended December 31, 2003, on a pro forma basis, 2004, and for theyear ended December 31, 2005, respectively. Receivables from commercial co-manufacturingcustomers accounted for approximately 18.5% and 18.3% of trade accountsreceivable as of December 31, 2004 and 2005, respectively. Our co-manufacturingcontracts are performed under several different pricing arrangements, rangingfrom “toll only,” under which we are responsible for labor, overhead andprofits, but not materials, to fully-costed contracts under which we alsopurchase the materials.

 

Wecontinually seek opportunities to use our technologies and experience topartner with established branded food companies in new co-manufacturingarrangements. We are in the early stages of co-manufacturing discussions withsome of the world’s largest branded food companies and believe that we arewell-positioned to secure contracts in connection with several of theseopportunities. Most of our 

 

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co-manufacturingcontracts include a capital component through which the customer funds aportion of the capital required to support the related product. Under these arrangements,although we provide the initial financing (or leasing) for the equipmentacquisition, the customer is obligated to reimburse us for up to 90% of thetotal invested capital (or lease cost) over the course of the initial term ofthe supply agreement which is typically paid over three to five years. Foragreements where equipment is purchased, we own all of the equipment acquiredunder such agreements, or retain the rights to purchase the equipment at theend of the lease at fair market value. If a product is discontinued, thecustomer is still required to pay the entire balance of the capital commitment.If we do not use the entire capacity of the equipment to supply our co-manufacturingcustomer, we have the right to use the equipment in our other businesses.

 

Inevaluating our financial condition and operating performance, our seniormanagement focuses on net income, cash flow, sales growth, EBITDA and adjustedEBITDA. Continued growth of our net income and cash flow will depend onimproving operating efficiencies, managing capital expenditures and increasingour net sales. Our future military sales growth will depend on our ability toincrease our penetration in existing programs and by expanding our sales toinclude activities that are newly outsourced by the U.S. Government. Inaddition, our commercial sales growth will depend on our continued developmentof our co-manufacturing relationships and expansion into other niche markets.Over the long term, we intend to continue to increase the percentage of oursales attributable to our commercial business. Our management believes thatadjusted EBITDA is useful to investors in evaluating our operating performancebecause EBITDA, which eliminates the effects of income taxes, financing and theaccounting effects of capital spending, each of which may vary fordifferent companies for reasons unrelated to overall operating performance, andthe adjustments made in arriving at adjusted EBITDA, provide informationregarding our ability to service and/or incur debt. Furthermore, the indenturegoverning the notes contains covenants based on adjusted EBITDA. For adiscussion of EBITDA and adjusted EBITDA, see Note (a) to Part II,Item 6, “Selected Financial Data.”

 

**Critical Accounting Policies**

 

Thefollowing significant accounting policies affect the judgments, estimates andassumptions used in the preparation of our consolidated financial statements.These critical accounting policies are more fully described in Note 3 to ourconsolidated financial statements.

 

*Revenue Recognition*. We recognize revenue from product sales when title and risk of losstransfers to the customer, which is generally upon shipment. We recordestimated discounts as a reduction in revenue in the same period revenue isrecognized based on historical experience.

 

OurU.S. Government contracts typically fall into two categories, fixed-pricecontracts and indefinite delivery, indefinite quantity contracts. In afixed-price contract, the price is based on a pre-determined rate and is notsubject to adjustment. Indefinite delivery, indefinite quantity contracts aresubject to component pricing. This component pricing is subject to retroactiveaudit adjustment by the Department of Defense. The magnitude of any suchadjustment has historically been immaterial.

 

OurU.S. Government contracts typically fall into two categories, fixed-pricecontracts and indefinite delivery, indefinite quantity contracts. In afixed-price contract, the price is based on a pre-determined rate and is notsubject to adjustment. Indefinite delivery, indefinite quantity contracts aresubject to component pricing. This component pricing is subject to retroactiveaudit adjustment by the DoD, however we believe the magnitude of any suchadjustment is insignificant based primarily on our pricing policies with theDoD as well as the results of prior DoD audits.

 

*Accounts Receivable*. We maintain an allowance for doubtful accounts to reflect an estimateof the uncollectibility of accounts receivable based on past collection historyand, when applicable, the identification of specific potential collectionrisks. If the financial condition of our customers were to deteriorate beyondthe estimates resulting in our inability to collect payment, we may berequired to increase the allowance for doubtful accounts.

 

*Inventories*. Inventories are stated at the lower of cost or market, with costbeing determined using the first-in, first-out, or “FIFO” method. Costsincluded in inventories consist of materials, labor, and fixed and variablemanufacturing overhead which are related to the purchase and production ofinventories. We maintain allowances, where applicable, for potentialslow-moving or obsolete inventory based on historical and current trends.Changes in market conditions, our customer base or other factors may requireadditional allowances.

 

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*Long-Lived and Intangible Assets*. We assess the impairment of our long-livedassets whenever events or changes in circumstances indicate that the carryingamount of the asset may not be recoverable. An impairment loss would berecognized when the carrying amount of the asset exceeds the estimatedundiscounted future cash flows expected to result from the use of the asset andits eventual disposition. The impairment to be recorded would be the excess ofthe assets carrying value over its fair value. Fair value would be determinedbased upon the best information available in the circumstances including quotedprices or other valuation techniques.

 

Wealso periodically reassess the estimated remaining useful lives of ourlong-lived assets. Changes to estimated useful lives would impact the amount ofdepreciation and amortization expense recorded in earnings in the relevantperiod.

 

*Stock Option Plans*. As permitted by the Statement of Financial Accounting Standard (“SFAS”)No. 123, “Accounting for Stock-Based Compensation,” we have elected toapply the provision of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees” (“Opinion No. 25”), in recognizing costsassociated with our stock option plans. Under Opinion No. 25, compensationis measured as the difference between the option’s exercise price and the fairvalue of the underlying shares at the measurement date and subsequent changesin the fair value of the underlying shares through the date the option isexercised or otherwise settled. The measurement date is the first date on whichboth the number of shares subject to the option and the option exercise priceare known. All of our option arrangements are compensatory. The relatedcompensation expense has been determined based upon the estimated fair value ofour common stock.

 

*Income Taxes*. The Predecessor had elected to be taxed as a Sub-Chapter Scorporation for federal income tax purposes. The Successor has not made thiselection and will be subject to federal income taxes. For state tax purposes,income taxes were accounted for under the asset and liability method during2002 and 2001. Beginning in 2003, the Predecessor was no longer subject tostate income taxes.

 

Deferredtax assets and liabilities were recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax basis and operatingloss and tax credit carryforwards. Deferred tax assets and liabilities weremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxstatus or tax rates is recognized in income in the period that includes theenactment date. We review these deferred tax assets periodically and recordvaluation allowances as deemed necessary.

 

*Fair Value of Financial Instruments*. The recorded values of financialinstruments, including accounts receivable, other assets, and accounts payable,approximate fair value due to their short maturity. The carrying value of therevolving line of credit approximates fair value due to its variable interestrate. The recorded value of the long-term debt approximates fair value based onborrowing rates currently available to us for financing arrangements withsimilar terms and average maturities.

 

*Goodwill*. Subsequent to January 1, 2002, goodwill is no longer amortized.The carrying value of goodwill is tested for impairment at least annually. Therecoverability of unamortized goodwill is based upon the fair value which isdetermined by using a discounted cash flow analysis, which is consistent withhow we determine the fair value of our common stock for our stock option plansand other such compensation arrangements.

 

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Inconnection with determining an estimated fair value, we must make significantassumptions, including the expected annual growth rate, projected future cashflows (including timing), discount rates reflecting the inherent risk in futurecash flows, market comparisons and recent transactions. If these estimates or theirrelated assumptions change in the future, we may be required to recordgoodwill impairment charges in the future.

 

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**Results of Operations**

 

Thefollowing pro forma table summarizes our historical operations for the fiscalyears ended December 31, 2003, the pro forma year ended December 31,2004, and the fiscal year ended December 31, 2005:

 
| ** **                                   | ** ** | **Predecessor**                                  | ** ** | **Successor**                                             | ** ** | ** **                                                    | ** ** | **Successor**                                                                 | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| **(dollars in thousands)**         | ** ** | **Year ended December  31, 2003** | ** ** | **Six-Month  Period Ended  June 30, 2004** | ** ** | **Six-Month  Period Ended  December 31, 2004** | ** ** | **Pro forma  Year Ended  December 31, 2004  (Unaudited)** | ** ** | **Year Ended December  31, 2005** | ** ** |
| **Income statement data:**                   |       |                                             |       |                                                      |       |                                                          |       |                                                                          |       |   |   |
| Net sales                                    |       | $                                                | 318,370    |                                                      | $          | 80,924                                                        |       | $                                                                             | 100,381    |   | $ | 181,305 |   | $ | 257,878 |   |
|                                         |       |                                             |       |                                                      |       |                                                          |       |                                                                          |       |   |   |
| Cost of sales                                |       | 265,447                                          |       | 67,753                                                    |       | 83,308                                                        |       | 151,061                                                                       |       | 210,897 |   |
| Gross profit                                 |       | 52,923                                           |       | 13,171                                                    |       | 17,073                                                        |       | 30,244                                                                        |       | 46,981 |   |
| Selling, general and administrative expenses |       | 27,008                                           |       | 12,459                                                    |       | 9,072                                                         |       | 21,531                                                                        |       | 23,461 |   |
| Operating profit                             |       | 25,915                                           |       | 712                                                       |       | 8,001                                                         |       | 8,713                                                                         |       | 23,521 |   |
| Other income (expense):                      |       |                                             |       |                                                      |       |                                                          |       |                                                                          |       |   |   |
| Interest expense                             |       | (537                                             | )          | (100                                                      | )          | (7,151                                                        | )          | (7,251                                                                        | )          | (18,073 | ) |
| Interest income                              |       | 244                                              |       | 507                                                       |       | 87                                                            |       | 594                                                                           |       | 210 |   |
| Other income, net                            |       | 980                                              |       | 369                                                       |       | 4                                                             |       | 373                                                                           |       | (201 | ) |
| Total other income (expense)                 |       | 687                                              |       | 776                                                       |       | (7,060                                                        | )          | (6,284                                                                        | )          | (18,064 | ) |
| Income before income taxes                   |       | 26,602                                           |       | 1,488                                                     |       | 941                                                           |       | 2,429                                                                         |       | 5,456 |   |
| Income tax (income) expense                  |       | 439                                              |       | 41                                                        |       | 964                                                           |       | 1,005                                                                         |       | 2,633 |   |
| Net income                                   |       | $                                                | 26,163     |                                                      | $          | 1,447                                                         |       | $                                                                             | (23        | ) | $ | 1,424 |   | $ | 2,824 |   |

 

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***Comparison of the fiscal year ended December 31, 2005 to the twelvemonths ended December 31, 2004, on a pro forma basis***

 

*Net Sales. *Our net sales for the fiscal year ended December 31, 2005 were $257.9million representing an increase of $76.6 million or 42.2%, compared to netsales of $181.3 million for the pro forma year ended December 31, 2004.  The increase in net sales resulted primarilyfrom increased sales to the Department of Defense of approximately $60.2million and increased sales of our co-manufactured products of approximately$18.1 million.  The increase in DoD saleswas driven by higher Meals Ready-to-Eat (MRE) sales of approximately $44.3million which resulted from MRE surge sales primarily occurring in the firstand fourth quarters of fiscal 2005, increased sales of Unitized Group Ration —A(URG-A) sales of approximately $13.2 million primarily in support of militaryoperations Outside the Continental United States (OCONUS) and increased othermilitary sales of approximately $3.1 million primarily in support ofHumanitarian causes associated with Hurricane Katrina and fiscal 2005earthquake relief efforts in Pakistan. The increase in co-manufacturing sales resulted from increased sales toexisting co-manufacturing customers Kraft and Gerber of approximately $4.8million and approximately $14.3 million in sales to new co-manufacturingcustomers, Quaker, Keefe, Delmonte and our other co-manufacturing customeradded during fiscal 2005.  Increases inmilitary and co-manufacturing sales were partially offset by lower sales in ourspecialty and other product sales of approximately $1.7 million.

 

*Gross Profit*.  Our gross profit for the fiscal year endedDecember 31, 2005 was approximately $47.0 million representing and increase of$16.7 million or 55.3%, as compared to the pro forma twelve months endedDecember 31, 2004 gross profit of approximately $30.2 million.  Our gross profit as a percentage of sales wasapproximately 18.2% and 16.7% for the year ended December 31, 2005 and proforma twelve month period ended December 31, 2004, respectively.  The increase in gross profit was driven byapproximately $13.0 million associated with DoD sales which consisted of higherpricing on MRE-26 base sales which began in the second quarter of fiscal 2006as compared to MRE-25 pricing for add-on sales in fiscal year 2005 as well ashigher volume sales due to surge orders which occurred in the first and fourthquarters of 2006.  In addition to theeffect of the MRE sales noted above, contributing to the higher DoD grossprofit was a significantly higher volume of UGR-A orders in fiscal 2005 ascompared to 2004, primarily related to OCONUS orders of approximately $13.2million.  Co-manufacturing sales alsocontributed approximately $3.7 million more in gross profit in fiscal 2005 ascompared to fiscal 2004 due to higher volume sales to existing co-manufacturingcustomers and the addition of several new customers that did not exist in fiscal2004.  These increases in gross profitwere partially offset by specialty and other sales losses that were notsignificant.

 

*Selling, General and Administrative Expenses.*  Our selling, general andadministrative expenses for the fiscal year ended December 31, 2005 wasapproximately $23.5 million representing an increase of approximately $1.9million or 9.0% as compared to selling, general and administrative expenses ofapproximately $21.5 million for the pro forma twelve months ended December 31,2004.  The increase in selling, generaland administrative expenses was largely attributable to expenditures on thecorporate facility build-out, professional and legal consulting fees and costattributable to additional hiring of corporate and operational personnel tosupport future growth which occurred in the second half of fiscal 2005 andinconsequential administration cost associated with the Senior PIK note held byTWC Holding LLC.

 

*Operating Profit.*  Our profit from operations for the year endedDecember 31, 2005 was approximately $23.5 million, representing an increase ofapproximately $14.8 million or 170.0% over the pro forma profit from operationsfor the twelve months ended December 31, 2004 of approximately $8.7million.  This increase in profit fromoperations was primarily the result of increased DoD sales revenue and volumeon MRE contracts and co-manufacturing sales which were offset by higherselling, general and administrative cost as noted above.

 

*Interest Expense.* Our interestexpense for the year ended December 31, 2005 was approximately $18.1 million,representing an increase of $10.8 million as compared to interest expense ofapproximately $7.3 million the pro forma twelve months ended December 31,2004.  The increase in interest expensein 2005, primarily resulted from six additional months of interest expense onour long term debt for the senior

 

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secured $125 million notes and includesamortization cost of bond issuance of approximately $683,000 and $3.7 millionin interest expense and bond cost amortization associated with the February2005 issuance of the PIK notes.

 

*Interest Income.*  Our interest income for the year endedDecember 31, 2005 was approximately $210,000, representing a decrease ofapproximately $384,000 as compared to interest income of approximately $594,000for the pro forma twelve months ended December 31, 2004.  The decrease in interest income was largelyattributable to investments held by the Predecessor in the first six months offiscal year 2004, which were not purchased in the transaction.

 

*Other Income (expense).*  Our other expense wasapproximately $201,000 for the year ended December 31, 2005 representing adecrease of approximately $574,000 as compared to other income of approximately$373,000 for the pro forma twelve months ended December 31, 2004.  The increase in other expense as compared toother income is largely attributable to an additional $150,000 in managementfees paid to Veritas Capital Management for twelve months of service ascompared to six months in fiscal 2004 which were further offset by decreased orexpiring Value Engineering, or “VE,” program incentives for U.S. Governmentcontractors, where the contractor is awarded 50% of the resulting industry-widesavings for a period of three years following the issuance by the DSCP of acontract modification requiring implementation of the proposed change asoutlined in the accepted VE proposal.

 

*Income Tax Expense.*   The provision for federal, state and local incometaxes for the year ended December 31, 2005, was approximately $2.6 million, or28.5% of Operating Company pretax income, compared to a provision for federal,state and local income taxes of approximately $1.0 million, or 41.4% of OperatingCompany pretax income for the pro forma twelve months ended December 31,2004. The reason for the decrease in provision as a percentage of netincome is due to the release of allowances against deferred tax assets infiscal 2005 which were initially established in fiscal 2004.

 

*Net Income. *As a result of the foregoing, we earned net income of $2.8 million forthe year ended December 31, 2005, representing an increase of approximately$1.4 million, compared to a pro forma net income of approximately $1.4 millionfor the twelve months ended December 31, 2004.

 

***Comparison of the twelve months ended December 31, 2004, on a pro formabasis, to the year ended December 31, 2003***

 

*Net Sales.*  Our net sales for the twelve monthsended December 31, 2004, on a pro forma basis, were $181.3 million representinga decrease of $137.1 million, or 43.1%, compared to net sales of $318.4million for the year ended December 31, 2003. The decrease in net salesresulted primarily from a $134.9 million decrease in sales to the DoD. This decrease was due mostly to higher military sales volumes in 2003associated with surge production to support the war in Iraq, which were reducedin 2004.  co-manufacturing sales decreased by $3.3 million during the sameperiod due to Kraft’s discontinuation of one of its co-manufactured productsresulting in a reduction of our net sales by $6.8 million, partially offset byincreases in our other co-manufacturing lines of $3.5 million.  Net salesof our branded consumer and commercial businesses increased in 2004, on a proforma basis, by $2.4 million.

 

*GrossProfit.*  Ourgross profit in the twelve months ended December 31, 2004, on a pro formabasis, was $30.2 million, representing a decrease of $22.7 million, or42.9%, compared to gross profit of $52.9 million in the year endedDecember 31, 2003. The decrease in gross profit was due primarily to decreasedsales volumes in our military business. As a percentage of net sales, our grossprofit was 16.7% for the twelve months ended December 31, 2004, on a pro formabasis, and 16.6% for the year ended December 31, 2003.

 

*Selling,General and Administrative Expenses.*  Our selling, general and administrative expenses in the twelvemonths ended December 31, 2004, on a pro forma basis, were $21.5 million,representing a decrease of $5.5 million, or 20.3%, compared to selling, generaland administrative expenses of $27.0 million in the year ended December 31,2003. Selling, general and administrative expenses increased to 11.9% of netsales in the twelve months ended December 31, 2004, on a pro forma basis, from8.5% in the year ended

 

35

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December 31, 2003. Thisincrease was primarily attributable to several non-recurring expenses in theperiod, including severance payments to the former president of our PreparedFoods Division and costs associated with consummating the Transactions. These costs totaled $1.7 million in the twelve months ended December 31, 2004,on a pro forma basis.  In addition, our sales in 2004, on a pro formabasis, were 43.1% lower than in 2003, resulting in an increase in our selling,general and administrative expenses, as a percentage of sales, due to asignificant portion of such expenses being fixed and not varying proportionallywith our sales.

 

*OperatingProfit.*  Ourprofit from operations was approximately $8.7 million in the twelve monthsended December 31, 2004, on a pro forma basis, representing a decrease of $17.2million, or 66.4%, compared to $25.9 million in the year ended December 31, 2003.This decrease in profit from operations resulted from our return to non-surgeproduction volumes.

 

*InterestExpense.*  Ourinterest expense in the twelve months ended December 31, 2004, on a pro formabasis, was approximately $7.3 million, representing an increase ofapproximately $6.7 million compared to interest expense of approximately$537,000 in the year ended December 31, 2003.  The increase in interestexpense resulted from the interest on our long term debt incurred in theTransactions and related amortization of expenses related to the issuance ofour long-term debt.

 

*InterestIncome.*  Ourinterest income in the twelve months ended December 31, 2004, on a pro formabasis, was approximately $594,000, representing an increase of approximately$350,000, or 143.4%, compared to interest income of approximately $244,000 inthe year ended December 31, 2003. The increase in interest income resulted fromincreased levels of invested cash by the Predecessor.

 

*OtherIncome, Net.* Our other income in the twelve months ended December 31, 2004, on a pro formabasis, was approximately $373,000, representing a decrease of approximately$607,000, or 61.9%, compared to other income of approximately $980,000 in theyear ended December 31, 2003. This decrease in other income was a result ofreduced rebates from the VE program, which are recognized as earned over aperiod of three years. The VE program provides incentives for U.S. Governmentcontractors to make cost savings proposals to the DSCP. Once the DSCP accepts acontractor’s VE proposal, the contractor is awarded 50% of the resultingindustry-wide savings for a period of three years following the issuance by theDSCP of a contract modification requiring implementation of the proposed changeas outlined in the accepted VE proposal.

 

*Income TaxExpense.*  Theprovision for federal, state and local income taxes in the twelve months endedDecember 31, 2004, on a pro forma basis, was approximately $1.0 million, or41.4% of pretax income, compared to a provision for state and local incometaxes of approximately $439,000, or 1.7% of pretax income, in the year endedDecember 31, 2003.  The increase in income tax expense in 2004, on a proforma basis, as compared to 2003 is related to our recording deferred taxliabilities of approximately $1.2 million and deferred tax assets ofapproximately $270,000 as of December 31, 2004.

 

*NetIncome. *As aresult of the foregoing, we earned net income of $1.4 million in the twelvemonths ended December 31, 2004, on a pro forma basis, representing a decreaseof $24.7 million, or 94.6%, compared to net income of $26.2 million in the yearended December 31, 2003.

 

**OperatingSegment Results**

 

We have two reportablesegments.  The RAD division is our core military supply business and thePFD division includes military supply as well as our core commercialbusiness.  In addition, the PFD division supplies the RAD division withintermediate items (approximately 31% at December 31, 2005) used to assembleproducts distributed by the RAD division as well as directly supplying militarycustomers with certain items.  The discussion below of the operatingresults of these two segments should be read in conjunction with Note 14 to ourConsolidated Financial Statements.

 

36

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***Comparison of the year ended December 31, 2005 to the pro forma twelvemonths ended December 31, 2004***

 

*Net Sales.*  Net sales for the RAD segment increased byapproximately $59.0 million for the year ended December 31, 2005, compared tothe pro forma twelve months ended December 31, 2004, as a result of increasedMRE and UGR-A sales ($44.3 million and $13.2 million, respectively) increasesto support surge and overseas operations. The remaining difference is primarily the result of other military saleswhich includes approximately $1.6 million in sales to support of humanitarianefforts following Hurricane Katrina and the Pakistani earthquake.  Net sales for the PFD segment increased byapproximately $17.6 for the year ended December 31, 2005, compared to the proforma twelve months ended December 31, 2004 (excluding intersegment sales,which declined by approximately $1.0 million during the same period) dueprimarily to increased co-manufacturing sales increases of approximately $18.1million which were slightly offset by overall decreases in military tray pack,specialty and other sales.

 

*Operating Profit.*  Profit from operations for RAD increased byapproximately $27.3 million for the year ended December 31, 2005 as compared tothe pro forma twelve months ended December 31, 2004 as a result of theincreased sales and volumes noted above. Also included in the operating profit of our RAD segment is an estimated$11.1 million that would have been previously recognized by our PFD segment onMRE shipments to the RAD segment (intersegment sales which are now recorded atcost).  Profit from operations for thePFD segment decreased by $9.2 million for the year ended December 31, 2005,compared to profit from operations for the pro forma twelve months endedDecember 31, 2004 for the PFD segment due to approximately $11.1 million ingross profit from intercompany sales now being included in the RAD segment asdiscussed above.  The remainingdifference is represented by the increased gross profit on co-manufacturing andCanadian sales of approximately $4.2 million and is offset by decreasedoperating profit on specialty and other sales and increased selling, generaland administrative expenses.

 

***Comparison of the twelve months ended December 31, 2004, on a pro-formabasis, to the year ended December 31, 2003***

 

*Net Sales.*  Net sales for the RAD segment declinedby $123.6 million for the twelve months ended December 31, 2004, on a pro formabasis, compared to the year ended December 31, 2003 due to decreased sales tothe DoD.  Net sales for the PFD segment declined by $13.5 million for thetwelve months ended December 31, 2004, on a pro forma basis, compared to theyear ended December 31, 2003(excluding inter-segment sales, which declined by$18.1 million during the same period) due to reductions in our Tray-Pack salesto the DoD of $12.8 million and reduced sales of our commercial products in2004.  co-manufacturing sales decreased by $3.3 million during the sameperiod due to Kraft’s discontinuation of one of its co-manufactured productsresulting in a reduction of our net sales by $6.8 million, partially offset byincreases in our other co-manufacturing lines of $3.5 million.  Net salesof our branded consumer and commercial businesses increased in 2004 by $2.4million.

 

*OperatingProfit.*  Profitfrom operations for RAD decreased by $17.4 million for the twelve months endedDecember 31, 2004, on a pro forma basis, compared to the year ended December31, 2003 for the RAD segment due to a decrease in sales to the DoD and a returnto non-surge production in 2004.  Profit from operations for PFD decreasedby $4.5 million for the twelve months ended December 31, 2004, on a pro formabasis, compared to the year ended December 31, 2003 for the PFD segment due toa decrease in sales to the DoD and inter-segment sales and the discontinuationof a product line by Kraft in 2004.

 

**Liquidityand Capital Resources**

 

The following tablesummarizes our net cash provided by or used in our operating activities,investing activities and financing activities and our capital expenditures forthe fiscal year ended December 31, 2003, the six months ended June 30,2004 and December 31, 2004 and the fiscal year ended December 31, 2005.

 

37

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| ** **                       |   | ** **                  |   | **Successor**                        | ** ** | ** **                  |       | ** **                  |       |
|----------------------------------|--------|-----------------------------|--------|--------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                       |   | **Predecessor**             |   | **Six-Month**                        | ** ** | **Pro forma**          |       | ** **                  |       |
| ** **                       |   | ** **                  |   | **Six-Month**                        |       | **Period Ended**            | ** ** | **Year End**           |       | **Successor** |   |
| **(dollars in thousands)**       |   | **December 31,  2003** |   | **Period Ended  June 30, 2004** |       | **December 31,  2004** | ** ** | **December 31,  2004** |       | **December 31,  2005** |   |
| ** **                       |   | ** **                  |   | ** **                           |       | ** **                  | ** ** | **(Unaudited)**             | ** ** | ** ** |   |
| Net cash  provided by (used in): |   |                        |   |                                 |       |                        |       |                        |       |   |   |
| Operating  activities            |   | $                           | 34,552 |                                 | $          | (472                        | )          | $                           | 10,125     |   | 9,653 |   | $ | 27,626 |   |
| Investing  activities            |   | (17,708                     | )      | (11,792                              | )          | (169,336                    | )          | (181,128                    | )          | (13,612 | ) |
| Financing  activities            |   | (12,595                     | )      | 8,314                                |       | 162,500                     |       | 170,814                     |       | 32 |   |
| Capital  expenditures            |   | (12,526                     | )      | (2,383                               | )          | (4,301                      | )          | (6,684                      | )          | (13,612 | ) |
|                                  |        |                             |        |                                      |            |                             |            |                             |            |  |  |  |  |  |  |

 

*Operating Activities.*

 

Netcash provided by (used in) operating activities was approximately $27.6 millionfor the year ended December 31, 2005 and approximately $(472,000) and$10.1 million for the six months ended June 30, 2004 for the Predecessorand December 31, 2004 for the Successor, respectively. Cash generated fromoperating activities increased for the year ended December 31, 2005 ascompared to the twelve months pro forma year ended December 31, 2004 duemostly to higher military sales to the DoD and increased sales of our co-manufacturingproducts which were offset by overall increased selling, general andadministrative expenses over the same time period. In addition, the Predecessorused additional cash to make payments related to stock options and stock-basedcompensation plans.

 

Netcash provided by (used in) operating activities was approximately $(472,000)and $10.1 million for the six months ended June 30, 2004 for thePredecessor and December 31, 2004 for the Successor, respectively. Cashgenerated from operations decreased in the twelve months ended December 31,2004, on a pro forma basis, compared to the year ended December 31, 2003due mostly to higher military sales volumes in the year ended December 31,2003 associated with surge production to support the war in Iraq, which werereduced in 2004. In the six months ended June 30, 2004, the Predecessorused additional cash to make payments relating to stock options and stock-basedcompensation plans and to increase inventories due to an order received towardsthe end of the period that was not shipped until after the period ended. TheSuccessor received the benefit of that shipment, and had no stock compensationplan payments in the period as did the Predecessor in the prior period, as wellas bond interest not being due until January 15, 2005, the result being anincrease in cash from operations of $10.1 million.

 

*Investing Activities*

 

Netcash used in investing activities was approximately $13.6 million for the yearended December 31, 2005 and approximately $11.8 million and $169.3 millionfor the six months ended June 30, 2004 for the Predecessor and December 31,2004 for the Successor, respectively. The $13.6 million investment for theyear ended December 31, 2005 related to capital equipment whereas theinvestments of the Successor and the Predecessor for the pro forma twelvemonths ended December 31, 2004 was primarily due to the *investments* of excess cash in longer-terminvestments of approximately $10.0 million and $2.4 million in capitalequipment. The $169.3 million investment by the Successor in the six monthsended December 31, 2004 was related to the capital investment of $4.3million and the cash used to effect the Transactions of $165.0 million.

 

Netcash used in investing activities was $11.8 million and $169.3 million for thesix months ended June 30, 2004 for the Predecessor and December 31,2004 for the Successor, respectively. Cash used in investing activities was$17.7 million for the year ended December 31, 2003. The $11.8 millioninvestment by the Predecessor in the six months ended June 30, 2004 wasprimarily due to the *investments*of excess cash in longer-term investments of approximately $10.0 million and$2.4 million in capital equipment. The $169.3 million investment by theSuccessor in the six months ended December 31, 2004 was related to thecapital investment of $4.3 million and the cash used to effect the Transactionsof $165.0 million.

 

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*Financing Activities*

 

Net cash provided by (used in) financing activitieswas approximately $32,000 as compared to approximately $8.3 million and $162.5 million for the six months ended June 30,2004 for the Predecessor and December 31, 2004 for the Successor,respectively. The current year activity represents the net financing activitiesrelated to the issuance of the Senior Unsecured PIK notes and subsequent returnof capital to TWC Holding LLC members and the cost associated with theissuance, whereas the prior year represented the purchase transaction discussedin Note 2 to our financial statements and the borrowing by the Predecessoragainst their line of credit to fund ESOP payment.

 

Netcash provided by (used in) financing activities was $8.3 million and$162.5 million for the six months ended June 30, 2004 for thePredecessor and December 31, 2004 for the Successor, respectively. For theyear ended December 31, 2003, the cash from financing activities was($12.6) million due to payments on the ESOP note and reduced borrowings on thePredecessor’s line of credit.

 

*Capital Expenditures*

 

Capitalexpenditures were $13.6 million for the year ended December 31, 2005 ascompared to capital expenditures of $2.4 million for the six months ended June 30,2004 and $4.3 for the six months ended December 31, 2004, for a total of$6.7 million for the twelve months ended December 31, 2004, on a pro formabasis. Expenditures during fiscal year 2005 were primarily to increase co-manufacturingcapacity and the build-out of our new corporate facility whereas capitalexpenditures for the pro forma twelve months ended December 31, 2004 werein support of additional capacity and improvement of both military and co-manufacturinglines as well as infrastructure.

 

Ourcapital investment of $12.6 million in 2003 was significantly higher than the$6.7 million pro forma 2004 due to our investment in new equipment to maintainand increase production levels to support the DoD’s military mobilizationcapacity.

 

*Long-Term Debt Expenditures*

 

Thefollowing table summarizes the long-term debt as of December 31, 2004 and2005:

 
| ** **                                    | ** ** | **December 31,** | ** **  |
|-----------------------------------------------|------------|-----------------------|-------------|
| ** **                                    | ** ** | **2004**              | ** **  | **2005** | ** ** |
| 10-7/8%  Senior secured notes; due 2011       |       | $                     | 125,000,000 |   | $ | 125,000,000 |   |
|                                          |       |                  |        |   |   |
| 13-7/8%  Senior PIK notes; due 2011           |       |                  |        | $ | 29,335,507 |   |
|                                          |       | 125,000,000           |        | 154,335,507 |   |
| Less:  Current maturities                     |       | —                |        | — |   |
| Long-term  debt, excluding current maturities |       | $                     | 125,000,000 |   | $ | 154,335,507 |   |

 

Weincurred interest expense of approximately $537,000 for the year ended December 31,2003, $7.3 for the pro forma twelve months ended December 31, 2004 and $18.1million for the year ended December 31, 2005 which also includesapproximately $683,000 of bond cost amortization on the $125 million seniorsecured and approximately $336,000 for the $26 million senior unsecured PIKnotes. In connection with the Transactions, $13.0 million of then-existinglong-term debt of the Predecessor was repaid, and we issued the original notesand entered into our new working capital facility. As a result, we haveincurred and will continue to incur significant debt service payments,including interest, in future years. Total cash interest payments on the $125million senior secured notes will be approximately $13.6 million on anannual basis, whereas the interest that is added to the principal amount of $26million original issue senior unsecured notes will accrete to approximately$36.2 million for a total obligation of $62.3 million at maturity. To theextent we have borrowings outstanding under our new working capital facility,we will have additional cash interest payments.

 

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OnFebruary 11, 2005, the Company and its wholly-owned finance subsidiary,TWC Holding Corp., co-issued their 13.875% Senior PIK Notes due 2011, or the “SeniorPIK Notes,” in the approximate aggregate principal amount of $62,259,000 with adiscount of approximately $36,259,000. The Senior PIK Notes earn interest atthe rate of 13.875% per annum, mature on August 15, 2011 and are unsecuredobligations of TWC Holding LLC and TWC Holding Corp. Neither the Operating Companynor any of its subsidiaries guaranteed the Senior PIK notes. The notes limitthe Company’s ability to incur additional indebtedness and pay dividends ormake other distributions as well as to make certain investments and sellcertain assets or merge with or into other companies. Because theCompany is a holding company with no operations and has only itsinvestment in the Operating Company, and because TWC Holding Corp. has noindependent operations or assets, future cash flows or assets of the Operating Companythrough 2011 may be required to service the $62.3 million Senior PIK notesupon their maturity.

 

Thepro forma effect of the additional interest expense on our net income assumingthe Company issued the Senior PIK notes and such issuance took place at thebeginning of the year would have resulted in interest expense (pre-tax) ofapproximately $3,733,000 for the year ended December 31, 2005.

 

Theindenture governing the notes and our new working capital facility imposesignificant operating and financial restrictions on us. These restrictionslimit or prohibit, among other things, our ability to incur additionalindebtedness, repay indebtedness prior to stated maturities, pay dividends onor redeem or repurchase our stock, issue capital stock, make investments,create liens, sell certain assets or merge with or into other companies, enterinto certain transactions with stockholders and affiliates, make capitalexpenditures, sell stock in our subsidiaries and restrict dividends,distributions or other payments from our subsidiaries. In addition to imposingrestrictions substantially similar to those contained in the indenture governingthe notes, our new working capital facility requires us to meet certainfinancial ratios and financial condition tests on a periodic basis.

 

Weexpect our capital expenditures in 2006 to be approximately $18.6 million,primarily to support our further consolidation of operations by discontinuingour Assembly operations in McAllen, Texas and shifting the work performed atthat location to the Greater Cincinnati Tri-state area and continued plantefficiency improvements.

 

Ourprincipal sources of liquidity are cash flow generated from operations andborrowings under our working capital facility. Because we did not purchasecertain working capital in the Transactions, we were required to draw down $3.0million under our working capital facility to provide funds for operations andto fund expenses incurred in connection with the Transactions. As of December 31,2004, we had repaid the original $3.0 million and there were no borrowingsoutstanding on our working capital facility. Further, we have no amountsoutstanding under our working capital facility at December 31, 2005

 

Ourliquidity is dependent on a number of other factors, including the timing ofcollection on our contract receivables, processing of weekly payroll andassociated taxes, payment to our suppliers and employer portions of employeebenefits. Our principal uses of cash will be to meet debt service requirements,finance our capital expenditures and fund working capital. Based on our currentlevel of operations and our anticipated growth, we believe that the cashproceeds from the issuance of the original notes, our cash from operations andother available sources of liquidity will be sufficient to fund our operationsfor the next 12 months and for our currently anticipated needs beyond thatperiod. Our future operating performance and ability to extend or refinance ourindebtedness will be dependent on future economic conditions and financial,business and other factors that are beyond our control. See Part I, Item1A, “Risk Factors.”

 

***Contractual Obligations***

 

Thefollowing sets forth our long-term debt, interest on long-term debt andoperating lease obligations as of December 31, 2005:

 

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**Contractual Cash Obligations**

 
| ** **                           | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| **(dollars in thousands)** | ** ** | **Total**  | ** ** | **Less than 1  year**           | ** ** | **1 - 3 years** | ** ** | **3 - 5 years** | ** ** | **More than 5  years** | ** ** |
|                                 |       |       |       |                                      |       |   |   |   |   |   |   |
| $ 125  million Long-term debit  |       | $          | 125,000    |                                      | $          | — |   | $ | — |   | $ | — |   | $ | 125,000 |   |
| $ 26 million  PIK Note          |       | $          | 62,259     |                                      | $          | — |   | $ | — |   | $ | — |   | $ | 62,259 |   |
| Interest on  long-term debt          |       | 74,767     |       | 13,594                                    |       | 27,188 |   | 27,188 |   | 6,797 |   |
| Leases                               |       | 12,162     |       | 2,901                                     |       | 5,703 |   | 3,512 |   | 46 |   |
| Total                                |       | $          | 274,188    |                                      | $          | 16,495 |   | $ | 32,891 |   | $ | 30,700 |   | $ | 194,102 |   |

 

Wehad no capital lease or purchase obligations as of December 31, 2005. As aresult of the acquisition transaction, we are required to pay a management feeof approximately $300,000 per year to Veritas Capital Management.

 

**Backlog**

 

Backlogrepresents products or services that our customers have committed by contractto purchase from us and for which we have firm orders. A large portion of thesecommitments is terminable by the customer at will. A significant portion of oursales to the DoD is pursuant to long-term contracts. Accordingly, our backlogconsists in large part of orders under these contracts.

 

Ourtotal backlog as of December 31, 2005 was $67.2 million. Thefollowing depicts our backlog as of December 31 of the year shown.

 
| **Year ****(in millions)** | ** ** | **Backlog** | ** ** |
|--------------------------------------|------------|-------------|------------|
| **2003**                             |       | $           | 75.1       |   |
| **2004**                             |       | 92.2        |       |
| **2005**                             |       | 67.2        |       |
|                                      |            |             |            |  |

 

Itis expected that a substantial portion of our backlog will be converted torevenue. However, there can be no assurance that our backlog will becomerevenues in any particular period, if at all. See Part I, Item 1A, “RiskFactors.” As of December 31, 2005, 70.5% and 29.5% of our backlog wasderived from our contracts with the DSCP and our commercial contracts,respectively.

 

**Off-Balance Sheet Arrangements**

 

Asof December 31, 2005, we had no off-balance sheet arrangements.

 

**Internal Controls Documenting and Testing**

 

Wewill be subject to the requirements of Section 404 of the Sarbanes-OxleyAct of 2002, or “Section 404,” for the fiscal year ending December 31,2007. We plan to begin documenting and testing our internal controls in thesecond quarter of 2006 in order to satisfy these requirements for fiscal year2007. During the course of such documenting and testing, we may identify significantdeficiencies or material weaknesses in our internal controls over financialreporting. Our management will likely be required to devote significant timeand expense to remediate such material weaknesses, but may not be able toremediate such material weaknesses in a timely manner. If we fail to maintainthe adequacy of our internal controls, our management may not be able toconclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404. As a result, ourindependent auditors may be unable to express an opinion on our management’sevaluation on the effectiveness of internal controls as required by Section 404regarding our management’s report on internal controls. Failure to achieve andmaintain an effective internal control environment could have a materialadverse effect on our business and on our access to the capital markets.

 

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## **Item 7A: Quantitativeand Qualitative Disclosures About Market Risk**

## ** **

Weare exposed to market risk, primarily from the impact of interest rate changeson our use of variable rate debt. Our exposure to market risks from foreigncurrency and commodity price fluctuations is limited since all of our purchasesand sales are denominated in U.S. dollars and raw commodities do not comprise asignificant percentage of our costs. Our sales to the Canadian militarycomprised less than 1% of our sales in 2005, and we may from time to timeenter into foreign currency forward contracts and other hedges to manage ourexposure to fluctuations in foreign currency exchange rates for the Canadiandollar, the impact of which is not significant. Other than with respect to oursales to the Canadian military, we generally do not have exposure to foreigncurrency risk. In addition, because our customary contract terms pass throughincrease in costs of commodities underlying our products to our customers, wegenerally do not have exposure to commodity price risk. We do not hold anyderivatives for trading or speculative purposes. Changes in the fair value ofderivatives are recorded in current earnings along with the change in the fairvalue of the underlying hedged item.

 

Allof our outstanding bank debt bears interest at variable interest rates tied tothe prime interest rate. The use of variable rate debt to finance ouroperations and capital improvements exposes us to variability in interestpayments due to changes in interest rates.

 

Asof December 31, 2005, no amounts were outstanding under our workingcapital facility. If the average outstanding amount under our working capitalfacility were $25 million over a one-year period, a 50 basis point increase inthe prime interest rate would result in increased annual interest expense of$125,000.

 

## **Item 8: FinancialStatements and Supplementary Data**

## ** **

Theconsolidated financial statements required by this item are included in a separatesection beginning on page F-1.

 

## **Item 9: ChangesIn and Disagreements with Accountants on Accounting and Financial Disclosure**

## ** **

None.

 

## **Item 9A:** Controls andProcedures

## ** **

Management,including our principal executive officer and principal financial officer, hasevaluated, as of the end of the period covered by this report, theeffectiveness of the design and operation of our disclosure controls andprocedures with respect to the information generated for use in this report. Basedupon, and as of the date of that evaluation, our principal executive officerand principal financial officer concluded that the disclosure controls andprocedures were effective to provide reasonable assurances that informationrequired to be disclosed in the reports filed or submitted under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms.

 

Indesigning and evaluating the disclosure controls and procedures, our managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable, not absolute, assurance of achieving thedesired control objectives and management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures. Based upon the above evaluation, our management believes that itscontrols do provide such reasonable assurances.

 

Therehave been no changes in our internal control over financial reporting thatoccurred during our most recent fiscal quarter that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

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## **Item 9B: Other Information**

## ** **

Pursuant to the Company's obligation under Regulation FD, the Companyis hereby furnishing the following information under Item 9B of this currentreport on Form 10-K.

 

On March 30, 2006 we were notified by Defense Supply CenterPhiladelphia, that The Wornick Company was awarded a 25% share level of theMRE-26-to-30 DoD contract which runs from fiscal 2006 through 2010. We do notanticipate that this award level will impact our strategy which we believe willcontinue to deliver increasing stakeholder value.

 

**PART III.**

 

## **Item 10: Directorsand Executive Officers of the Registrant**

## ** **

Thefollowing table sets forth the directors and executive officers of The WornickCompany and their ages as of March 31, 2006. All directors and officersserve for a period of one year or until their successors are duly elected andqualified.

 
| **Name**                                        | ** ** | **Age** | ** ** | **Position**                                     |
|-------------------------------------------------|------------|---------|------------|--------------------------------------------------|
| Robert B. McKeon                                |       | 51      |       | Chairman and Director                            |
|                                            |       |    |       |                                             |
| Michael M. Thompson                             |       | 59      |       | President, Chief Executive Officer and  Director |
|                                            |       |    |       |                                             |
| Jon P. Geisler                                  |       | 41      |       | Chief Operation Officer                          |
|                                            |       |    |       |                                             |
| Brian A. Lutes                                  |       | 41      |       | Chief Financial Officer and Treasurer            |
|                                            |       |    |       |                                             |
| Thomas J. Campbell                              |       | 47      |       | Secretary and Director                           |
|                                            |       |    |       |                                             |
| General Barry R. McCaffrey (USA Ret.)           |       | 63      |       | Director                                         |
|                                            |       |    |       |                                             |
| Admiral Joseph W. Prueher (USN Ret.)            |       | 63      |       | Director                                         |
|                                            |       |    |       |                                             |
| Admiral Leighton W. Smith, Jr. (USN  Ret.) |       | 66      |       | Director                                         |
|                                            |       |    |       |                                             |
| Ramzi M. Musallam                               |       | 37      |       | Director                                         |

 

**Robert B. McKeon, *Chairmanand Director.***Mr. McKeon has been the Chairman of our board of directors and amember of our compensation committee, corporate governance and nominatingcommittee and executive committee since June 2004. Mr. McKeon is thePresident of Veritas Capital, a New York-based private equity investment firmhe founded in 1992. Mr. McKeon is on the Board of Trustees of FordhamUniversity and the Board of Fellows of Trinity College. Mr. McKeon is alsoa member of the Council on Foreign Relations and a member of the boards ofdirectors of several private companies. Mr. McKeon holds a bachelor’sdegree from Fordham University and a master’s degree in business administrationfrom Harvard Business School.

 

**Michael M. Thompson, *President,Chief Executive Officer and Director.***Mr. Thompson has been serving as ourPresident and Chief Executive Officer since December 8, 2004. He mostrecently served as President and Chief Executive Officer of Trak Communications, Inc.,a microwave component and sub-system manufacturer for commercial wireless,satellite communication and defense applications, from October 2001 to May 2004.Mr. Thompson was an officer of Trak from September 2000 to October 2001.Prior to joining Trak, from 1997 to 1999, Mr. Thompson headed the fibersand composites business unit of SGL Carbon AG, a manufacturer ofmechanical/composite assemblies, composite structures and carbon fiber forcommercial and aerospace markets. From 1967 to 1972, Mr. Thompson servedas an aviator in the U.S. Marine Corps, with distinguished combat service inthe Republic of Vietnam, and was honorably discharged with the rank of Captain.Mr. Thompson holds a bachelor of science in mechanical engineering fromUtah State University and pursued graduate studies in operations research andfinance at Idaho State University.

 

**Jon P. Geisler, Chief Operating Officer*.***Mr. Geisler has been serving as ChiefOperating Officer of the Wornick Company since April 2005. Mr. Geislerpreviously served as President and Chief Executive Officer of our PreparedFoods Division. He joined our quality assurance department in August 1985and has worked in every operational aspect of MRE production, including as VicePresident of Operations, Operations Manager, Production Manager, ProductionSupervisor, Process Engineer and Quality Control Manager. He most recentlyserved as Executive Vice President and Chief Operating Officer of the

 

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PreparedFoods Division. Mr. Geisler’s current responsibilities include oversightof operations, quality assurance, technical services and engineering. He holdsa bachelor of science degree in Engineering Management from the University ofEvansville.

 

**Brian A. Lutes, Chief Financial Officer and Treasurer.**Mr. Lutes has been serving as our ChiefFinancial Officer and Treasurer since May 24, 2005. Mr. Lutespreviously served as Senior Vice President, responsible for Human Resources atFifth Third Bancorp. Fifth Third operates more than 1,000 branches in theMidwest and Florida and has nearly $7 billion in revenues, over $100 billion inassets and more than 20,000 employees. Prior to joining Fifth Third, Mr. Luteswas employed by the General Electric Company from 1986 to 2002 where he hadrecently served as the Chief Financial Officer, Global Operations for GEMedical Systems. He has held other global leadership assignments withinfinancial and risk management, executive development and global sourcing. Inaddition, he spent several years with GE’s Corporate Audit Staff conductingfinancial audits and operational reviews at nine different GE businesses. Mr. Lutesholds a bachelor of science and master of engineering degree in mechanicalengineering from the University of Louisville’s Speed Scientific School andcompleted his MBA through the University of Connecticut’s Executive MBAProgram.

 

**Thomas J. Campbell, *Secretaryand Director.***Mr. Campbell has been our Secretary and a member of our board ofdirectors and a member of our compensation committee, corporate governance andnominating committee and executive committee since June 2004. Mr. Campbellis a partner at Veritas Capital, which he has been associated with since 1992. Heis also a member of the boards of directors of several private companies. Mr. Campbellholds a bachelor’s degree in accounting and finance from Lehigh University.

 

**General Barry R. McCaffrey (USA Ret.), *Director.***General McCaffrey has been a member of ourboard of directors and a member of our audit committee since June 2004. Gen.McCaffrey was Director, White House Office of National Drug Control Policy fromFebruary 1996 to January 2001, serving as a member of the President’sCabinet and the National Security Council. During his service career, he servedoverseas for 13 years, including service as Commander-in-Chief, U.S.Southern Command from 1994 to 1996. Gen. McCaffrey is the president of aprivate consulting firm and a member of the boards of directors of severalprivate companies. Gen. McCaffrey holds a bachelor’s degree in generalengineering from the U.S. Military Academy and holds a master’s degree in civilgovernment from American University.

 

**Admiral Joseph W. Prueher (USN Ret.), *Director.***Admiral Prueher has been a member of ourboard of directors and a member of our audit committee and corporate governanceand nominating committee since June 2004. Admiral Prueher served as U.S.Ambassador to the People’s Republic of China from November 1999 to May 2001.His diplomatic post followed a 35-year career in the U.S. Navy, where he servedas Commander-in-Chief, U.S. Pacific Command from January 1996 to February 1999.From 1989 through 1995, Admiral Prueher served as Commandant of Midshipmen atthe U.S. Naval Academy at Annapolis, Maryland, Commander of Carrier BattleGroup ONE based in San Diego, California, Commander of the U.S. MediterraneanSixth Fleet and of NATO Striking Forces, and as Vice Chief of Naval Operationsin the Pentagon. He is a member of the boards of directors of Merrill Lynch &Co., Inc., New York Life Insurance Company and Emerson Electric Co. AdmiralPrueher holds a bachelor’s degree in naval science from the U.S. Naval Academyand a master’s degree in international relations from George WashingtonUniversity.

 

**Admiral Leighton W. Smith, Jr. (USN Ret.), *Director.***Admiral Smith has been a member of our boardof directors and a member of our audit committee since June 2004. AdmiralSmith was appointed to the four-star rank in April 1994, becameCommander-in-Chief, Allied Forces Southern Europe and concurrently assumed thecommand of the NATO-led Implementation Force in Bosnia in December 1995. AdmiralSmith retired from the U.S. Navy after 34 years of service in October 1996.Admiral Smith serves as a Senior Fellow at the Center for Naval Analysis, aSenior Advisor at the U.S. Naval Institute and President of Leighton SmithAssociates. He is currently a member of the board of directors of CAEUSA Inc. and has been a member of the board of directors of VanguardAirlines, Inc., an aviation company, since August 1998. Admiral Smithis a graduate of the U.S. Naval Academy.

 

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**Ramzi M. Musallam, *Director.***Mr. Musallamhas been a member of our board of directors and a member of our compensationcommittee, corporate governance and nominating committee and executivecommittee since June 2004. Mr. Musallam is a partner of VeritasCapital, with which he has been associated with since 1997. He is also a memberof the boards of directors of several private companies. Mr. Musallamholds a bachelor’s degree from Colgate University with a double major ineconomics and mathematics and a master’s degree in business administration fromthe University of Chicago Graduate School of Business.

 

**Audit Committee Financial Expert**

 

Aspresently constituted, the audit committee of our board of directors does nothave a member that is a “financial expert,” as such term is defined in Item 401(h) ofRegulation S-K promulgated by the SEC. Several members of our audit committeecurrently serve or have served as members of audit committees of the boards ofdirectors of other reporting companies. Our board of directors has determinedthat while none of the audit committee members meets all of the criteriaestablished by the SEC to be classified as a “financial expert,” the members ofour audit committee have sufficient understanding of audit committee functions,internal control over financial reporting and financial statement evaluation soas to capably perform the tasks required of the audit committee. Accordingly,our board of directors believes that the additional expense and effortnecessary to add an individual to our board of directors and its auditcommittee solely for the purpose of satisfying the criteria of a “financialexpert” is unwarranted given the size of our operations and complexity of ourfinancial statements.

 

**Code of Ethics**

 

Asour principal executive officer, our principal financial officer or controllerand other persons performing similar functions are the same persons for bothTWC Holding LLC and the Operating Company, we have adopted the code of ethicsof the Wornick Company.

 

## **Item 11: ExecutiveCompensation**

## ** **

Thefollowing table summarizes compensation awarded or paid by us during 2005 and2004****to our President and ChiefExecutive Officer and our other executive officers. The fiscal 2004 compensationamounts in the following table for Messrs. Geisler, Cavazos, and McQuayreflect compensation paid by the Predecessor company on or prior to June 30,2004. Only two years of compensation information has been provided in the tableas we were not a reporting company at any time during fiscal year 2003.

 
| ** **                                              | ** ** | ** **              | ** ** | ** **                   | ** ** | **Long-term Compensation**                                | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                              | ** ** | **For the Year  Ended** | ** ** | **Annual Compensation** | ** ** | **Stock Options  and Restricted  Stock Awards** | ** ** | **All Other  Compensation** | ** ** |
| **Name and Principal Position (dollars in  thousands)** | ** ** | **December 31,**   | ** ** | **Salary**                   | ** ** | **Bonus**                                                      | ** ** | **(1)** | ** ** | **(2)** | ** ** |
| Michael M.  Thompson (3)                                |       | 2005                    |       | $                            | 325        |                                                           | $          | 202 |   | $ | 51 |   | $ | — |   |
| President  and Chief Executive Officer,                 |       | 2004                    |       | 25                           |       | —                                                         |       | — |   | — |   |
|                                                    |       |                    |       |                         |       |                                                           |       |   |   |   |   |
| Jon P.  Geisler                                         |       | 2005                    |       | $                            | 240        |                                                           | $          | 148 |   | $ | 59 |   |   |   |
| Chief  Operations Officer,                              |       | 2004                    |       | 233                          |       | 124                                                            |       | — |   | 5 |   |
|                                                    |       |                    |       |                         |       |                                                           |       |   |   |   |   |
| Brian A.  Lutes                                         |       | 2005                    |       | $                            | 240        |                                                           | $          | 87 |   | $ | 4 |   |   |   |
| Chief  Financial Officer and Treasurer                  |       | 2004                    |       | —                       |       | —                                                         |       | — |   | — |   |
|                                                    |       |                    |       |                         |       |                                                           |       |   |   |   |   |
| John F,  McQuay                                         |       | 2005                    |       | $                            | 198        |                                                           | $          | 122 |   | $ | — |   |   |   |
| Former Chief  Financial Officer and Treasurer,          |       | 2004                    |       | 174                          |       | 205                                                            |       | — |   | — |   |
|                                                    |       |                    |       |                         |       |                                                           |       |   |   |   |   |
| Humberto “Sonny”  Cavazos (4)                 |       | 2005                    |       | $                            | 245        |                                                           | $          | 120 |   | $ | — |   |   |   |
| President  and Chief Executive Officer,                 |       | 2004                    |       | 224                          |       | 135                                                            |       | — |   | 4 |   |
| Right Away  Division                                    |       |                    |       |                         |       |                                                           |       |   |   |   |   |
|                                                         |            |                         |            |                              |            |                                                                |            |  |  |  |  |  |  |  |  |

 

45

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(1)                                  During fiscal year 2004, we granted awards ofClass B interests, as described below in more detail in “—Option Plan” belowand Part III, Item 12, “Security Ownership of Certain Beneficial Ownersand Management and Related Stockholder Matters.”  These awards were valuedat the time of their grants as follows: Larry L. Rose, a 2.5% interest valuedat approximately $488 thousand (forfeited upon resignation); Jon P. Geisler, a1.5% interest valued at approximately $293 thousand; Humberto “Sonny” Cavazos,a 0.5% interest valued at approximately $98 thousand (relinquished in 2005);and Keith E. Frase, a 1.5% interest valued at approximately $293 thousand(forfeited upon resignation). These awarded interests are subject to afive-year vesting schedule and were deemed to have vested 10% for the sixmonths ended December 31, 2004 for the purposes of the above table. Wegranted two additional Class B interests awards during the year ended December 31,2005 that have similar terms as the initial award described above.

 

(2)                                  Reflects matching employer contributions toour 401(k) plan, life insurance premiums paid by us on behalf of these executivesand other miscellaneous compensation.

 

(3)                                  Mr. Thompson was appointed the Presidentand Chief Executive Officer of The Wornick Company in December 2004 andhis compensation amounts reflect his compensation from December 2004, atan annual base salary of $325,000.

 

(4)                                  Mr. Cavazos was appointed the Presidentand Chief Executive Officer of Right Away Division in October 2004 andserved as the Executive Vice President and Chief Operating Officer of RightAway Division during 2003.

 

**Option Plan**

 

Wehave no stock option plan. Members of Wornick’s management and outsidedirectors participate in Wornick’s profits through a plan that grants them Class Binterests in TWC Holding LLC. Pursuant to the terms of the operating agreementgoverning TWC Holding LLC, the holders of Class B interests may receiveup to approximately 7.9%, in the aggregate, of all distributions made by TWCHolding LLC after the holders of the Class A interests in TWC Holding LLChave received a return of their invested capital, provided that the holders ofthe Class A interests have received an 8% per annum internal rate ofreturn on their invested capital. The currently outstanding Class Binterests entitle the holders thereof to receive approximately 3.9%, in theaggregate, of all such distributions made by TWC Holding LLC. The Class Binterests are subject to a five-year vesting schedule with any unvestedinterests reverting to the holders of Class A interests in the event theyare forfeited or repurchased.

 

**Incentive Compensation Plan**

 

Membersof Wornick’s management were eligible to participate in our executive incentivecompensation plan beginning in 2005, which provided bonuses for certain keyexecutives if Wornick achieved certain performance targets set by Wornick’sBoard of Directors. Under the incentive plan, participants generally areeligible to receive an award based on a percentage of base salary. Duringfiscal 2006 Wornick paid approximately $1.1 million to members of managementunder the executive incentive compensation plan that was expensed in fiscal2005. A similar executive incentive compensation plan has been approved forfiscal year 2006.

 

**401(k) Plan**

 

Wornicksponsors a defined contribution plan, or 401(k) Plan, intended to qualify underSection 401 of the Internal Revenue Code of 1986, as amended, or the Code.Substantially all of Wornick’s employees are eligible to participate in its401(k) Plan on the first day of the month following an employee’s completion of90 days of employment. Employees may make pre-tax contributions from1% to 50% of their eligible compensation, but not to exceed the limitsprescribed under the Code. Employees may direct their investments amongvarious pre-selected investment alternatives. Employee contributions to our401(k) Plan vest immediately. Wornick matches 100% of the employee’s pre-taxcontributions for the first 3% of

 

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theemployee’s compensation deferred, plus 50% of the employee’s pre-taxcontributions for the next 2% of compensation deferred, for a maximum employermatching contribution of 4% of compensation deferred. The employer matchingcontributions for employees participating in Wornick’s 401(k) Plan also vestimmediately.

 

**Employment Arrangements**

 

OnApril 11, 2005, The Wornick Company entered into an employment agreementwith Michael M. Thompson to serve as the Operating Company’s President andChief Executive Officer. The initial term of the employment agreement extendedthrough December 31, 2005. The employment agreement automatically renewsfor additional one year terms unless one of the parties provides written noticeof intent not to renew the employment agreement at least 90 days prior to theexpiration of the then current term. As of March 31, 2006, no suchcommunication was made by either party to the agreement.

 

Ourother executives are not presently bound by employment agreements with us and may resignor be terminated at any time. We may in the future enter into employmentor severance arrangements with our executives.

 

**Compensation Committee Interlocks and Insider Participation**

 

Ourcompensation committee consists of Messrs. Campbell, McKeon and Musallam. Thecompensation committee makes decisions on the compensation of certain of ourexecutive officers. There are no compensation committee interlocks (i.e., noneof our executive officers serves as a member of the board of directors or thecompensation committee of another entity that has an executive officer servingon our board of directors). None of our directors or officers has anyrelationships that would require disclosure pursuant to Item 404 of Regulationof S-K (“Certain Relationships and Related Transactions”), except as describedbelow in “—Director Compensation” and as disclosed in Item 13.

 

**Director Compensation**

 

Thethree outside directors, General McCaffrey and Admirals Prueher and Smith, areeach paid an annual fee of $35,000, an additional fee of $2,000 for eachregular quarterly meeting of the board of directors that they attend and anadditional fee of $6,250 for each other meeting of the board of directors thatthey attend. Each of the outside directors is also reimbursed for his travel,lodging and other expenses of attending meetings of the board of directors. Inaddition, each member of the audit committee of our board of directors receivesa fee of $2,500 for each audit committee meeting that he attends. There are noother fees paid to these directors. We do not maintain a medical, dental, orretirement benefits plan for these directors. The remaining directors areemployed either by us or Veritas Capital and are not separately compensated fortheir services as directors although they are reimbursed for expenses incurredin connection with attending board and committee meetings.

 

## **Item 12: SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.**

## ** **

Thefollowing table sets forth the beneficial ownership of TWC Holding LLC as of March 29,2006 by (i) each person or entity known to us to own more than 5% of any class ofTWC Holding LLC’s outstanding securities, (ii) each member of our board ofdirectors and each of our named executive officers and (iii) all of themembers of the board of directors and executive officers as a group.

 

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| **Name of Beneficial Owner (1)**              | ** ** | **Percent of  Class A  Interests  (2)(3)** | ** ** | **Class A  Interests  Distribution  Participation  (2)(3)(4)** | ** ** | **Class B  Interests  Distribution  Participation  (2)(3)(4)** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| Veritas  Capital Management II, L.L.C. (5)                        |       |                                                 |       |                                                                |       |                                                                |       |
| 590 Madison  Avenue, 41st Floor,                                  |       |                                                 |       |                                                                |       |                                                                |       |
| New York,  New York 10022                                         |       | 94.7                                                 | %          | 88.9                                                                | %          | —                                                              |       |
| Robert B.  McKeon (6)                                             |       | 94.7                                                 | %          | 88.9                                                                | %          | —                                                              |       |
| Thomas J.  Campbell (6)                                           |       | 94.7                                                 | %          | 88.9                                                                | %          | —                                                              |       |
| Ramzi M.  Musallam (6)                                            |       | 94.7                                                 | %          | 88.9                                                                | %          | —                                                              |       |
| Michael M.  Thompson (7)                                          |       | —                                               |       | —                                                              |       | 2.5                                                                 | %          |
| Jon P. Geisler                                                    |       | 1.1                                                  | %          | 1.0                                                                 | %          | 1.5                                                                 | %          |
| Brian A.  Lutes                                                   |       | —                                               |       | —                                                              |       | 1.0                                                                 | %          |
| Humberto “Sonny”  Cavazos (8)                           | ** ** | *****                                                | ** ** | *                                                                   |       | —                                                              |       |
| General  Barry R. McCaffrey (USA Ret.)                            |       | —                                               |       | —                                                              | ** ** | *****                                                               | ** ** |
| Admiral  Joseph W. Prueher (USN Ret.)                             |       | —                                               |       | —                                                              | ** ** | *****                                                               | ** ** |
| Admiral  Leighton W. Smith (USN Ret.)                             |       | —                                               |       | —                                                              | ** ** | *****                                                               | ** ** |
| All executive  officers and directors as a group (11 persons) (9) |       | 95.8                                                 | %          | 89.9                                                                | %          | 5.0                                                                 | %          |

 

----

*                 Less than 1%.

 

(1)          Except as otherwise indicated, the address for each of the namedsecurity owners is 4701 Creek Road, Suite 200, Cincinnati, Ohio 45242.

 

(2)          Beneficial ownership is determined inaccordance with the rules of the SEC.

 

(3)          TWC Holding LLC has two classes of membershipinterests, Class A interests and Class B interests. Certain membersof our management and outside directors have received Class B interests. Pursuantto the terms of the operating agreement governing TWC Holding LLC, the holdersof Class B interests are entitled to receive up to approximately 7.9%, inthe aggregate, of all distributions made by TWC Holding LLC after the holdersof Class A interests in TWC Holding LLC have received a return of theirinvested capital, provided that the holders of the Class A interests have receivedan 8% per annum internal rate of return on their invested capital. The Class Binterests are subject to a five-year vesting schedule with any unvestedinterests reverting to the holders of Class A interests.

 

(4)          Represents the percentage of distributions byTWC Holding LLC to which the holder of interests would be entitled in respectof such holder’s Class A interests or Class B interests, asapplicable, assuming (i) full vesting of the Class B interests and (ii) thatholders of all Class A interests of TWC Holding LLC have received thestated returns on their invested capital.

 

(5)          The Veritas Capital Fund II, L.P., a Delawarelimited partnership of which Veritas Capital Management II, L.L.C. is thegeneral partner, is the manager of TWC Holding LLC. The Veritas Capital FundII, L.P. owns 94.7% of the Class A membership interests of TWC HoldingLLC. Through the provisions of the limited liability company agreementgoverning TWC Holding LLC,

 

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The Veritas Capital Fund II, L.P. controls the vote of all Wornick’sshares held by TWC Holding LLC and is deemed to own all Wornick’s common stockheld by TWC Holding LLC. Interests in TWC Holding LLC are not transferablewithout the consent of The Veritas Capital Fund II, L.P.

 

(6)          Messrs. McKeon, Campbell and Musallam are principals of VeritasCapital Management. Accordingly, they may be deemed to share beneficialownership of the membership interests owned by Veritas Capital Managementalthough they disclaim this beneficial ownership except to the extent of theirpecuniary interest in Veritas Capital Management.

 

(7)          Mr. Thompson was appointed as ourPresident and Chief Executive Officer in December 2004. On April 11,2005 Mr. Thompson was awarded a 2.5% Class B interests award.

 

(8)          Mr. Cavazos was appointed the Presidentand Chief Executive Officer of Right Away Division in October 2004 andserved as the Executive Vice President and Chief Operating Officer of RightAway Division during 2003. In fiscal 2005, Mr. Cavazos relinquished hisinterests in the Class B interests.

 

(9)          Includes 94.7% of the Class A interestsheld by The Veritas Capital Fund II, L.P., beneficial ownership of which may bedeemed to be shared by Messrs. McKeon, Campbell and Musallam, as theprincipals of Veritas Capital Management. Messrs. McKeon, Campbell andMusallam disclaim this beneficial ownership except to the extent of theirpecuniary interest in Veritas Capital Management.

 

**Securities Authorized for Issuance Under Equity CompensationPlans**

 

Formore information, see Part III, Item 11, “Executive Compensation —   OptionPlan,” for a discussion of the features of the plan we utilize to incentivizeour management and outside directors.

 

## **Item 13: CertainRelationships and Related Transactions**

## ** **

**Transaction Fee**

 

Inconnection with the acquisition transaction, we paid a transaction fee of $3.0million to Veritas Capital Management, an affiliate of The Veritas Capital FundII, L.P., out of the proceeds of the offering of the notes. This fee has beenreflected as part of the fees and expenses of the acquisition.

 

**Management Fee**

 

Wepay an annual management fee of $300,000 to Veritas Capital Management, anaffiliate of The Veritas Capital Fund II, L.P.

 

## **Item 14: PrincipalAccountant Fees and Services**

## ** **

PricewaterhouseCoopersLLP has served as our independent registered public accounting firm since theconsummation of the acquisition transaction on June 30, 2004. Thefollowing table sets forth the aggregate fees billed by PricewaterhouseCoopersfor professional services for the year ended December 31, 2005 and for thesix-months ended December 31, 2004 for professional services provided, aswell as out-of-pocket costs incurred in connection with these services:

 

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| ** **          | ** ** | **Year ended  December 31,  2005** | ** ** | **Six-months  Ended  December 31,  2004** | ** ** |
|---------------------|------------|----------------------------------------------|------------|------------------------------------------------|------------|
| Audit fees          |       | $                                            | 205,000    |                                           | $          | 150,000 |   |
| Audit-related  fees |       | 6,844                                        |       | 146,000                                        |       |
| Tax fees            |       | 37,000                                       |       | —                                         |       |
| All other  fees     |       | 2,556                                        |       | 2,566                                          |       |
| Total               |       | $                                            | 251,400    |                                           | $          | 298,566 |   |

 

*Audit Fees*. Consists of fees for professional services rendered for the audit ofour financial statements and review of the interim financial statementsincluded in quarterly reports.

 

*Audit-Related Fees*. Consists of fees for assurance and related services that arereasonably related to the performance of the audit or review of our financialstatements that are not reported under “Audit Fees”, and services that arenormally provided by PricewaterhouseCoopers in connection with statutory andregulatory filings or engagements. These services include consultations inconnection with our acquisition of our business and advice on other accounting-relatedmatters. In fiscal year 2004, these fees were primarily comprised of servicesfor consulting related to accounting matters and due diligence and comfortletter services related to the acquisition transaction and related debtofferings.

 

*Tax Fees*. Consists of fees for preparation of federal, state and local incomeand franchise tax returns. There were no fees incurred in the six months ended December 31,2004 for professional services rendered related to tax compliance, tax adviceor tax planning.

 

*All Other Fees*. Consists of fees for all other fees for professional services,comprised primarily of purchase of accounting and compliance software.

 

**Audit Committee Pre-Approval**

 

Ouraudit committee has not established a policy to delegate authority to approveof any audit or permissible non-audit services. Our audit committeepre-approves, on an individual basis, all audit and permissible non-auditservices provided by the independent auditors. These services may includeaudit services, audit-related services, tax services and other services. Pre-approvalis generally subject to a specific budget, and the independent auditor will berequired to provide back-up documentation to be provided to the audit committeeregarding the specific services or category of services to be provided.

 

Ouraudit committee has determined that the non-audit services provided byPricewaterhouseCoopers LLP are compatible with maintaining the independence ofPricewaterhouseCoopers LLP as the independent auditors.

 

Forthe year ended December 31, 2005 all of the audit, audit related fees, taxfees and other fees provided by PricewaterhouseCoopers LLP have been approvedby the audit committee.

 

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**PART IV.**

 

## **Item 15: Exhibits,Financial Statement Schedules**

 

**(a)(1)  Financial Statements**

 

Alist of financial statements required to be filed as part of this reportis set forth in the Index to Consolidated Financial Statement, whichimmediately precedes such financial statements, and is incorporated herein byreference.

 

**(a)(2)  Financial Statement Schedules**

 

Financialstatement schedules are omitted because they are not required or are notapplicable or the information required to be set forth therein is includedelsewhere in the financial statements or the notes thereto.

 

**(a)(3)  Exhibits**

 

Alist of exhibits required to be filed as part of this report is set forthin the Exhibit Index, which immediately precedes such exhibits, and isincorporated herein by reference.

 

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**Signatures**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, in the City of Cincinnati, State ofOhio.

 
|                      |   | TWC HOLDING LLC |
|---------------------------|--------|-----------------|
|                      |   |            |   |   |
|                      |   |            |   |   |
| Date: March 31, 2006 |   | By:             |   | /s/ Michael M. Thompson |   |
|                      |   | Name:           |   | Michael M. Thompson |
|                      |   | Title:          |   | President, Chief Executive Officer and  Director  (Principal Executive Officer) |

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed by thefollowing persons in the capacities and on the dates indicated.

 

 
| **Signature**                           | ** ** | **Title**                                                                  | ** ** | **Date**            |
|-----------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------------|
|                                    |       |                                                                       |       |                |
| /s/ Robert B. McKeon                    |       | Chairman of the Board of  Directors                                        |       | March 31, 2006 |
| Robert B. McKeon                        |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
|                                    |       | President, Chief Executive  Officer and                                    |       | March 31, 2006 |
| /s/ Michael M. Thompson                 |       | Director (Principal  Executive Officer)                                    |       |
| Michael M. Thompson                     |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
|                                    |       | Chief Financial Officer  and Treasurer  (Principal Financial and Principal |       | March 31, 2006 |
| /s/ Brian A. Lutes                      |       | Accounting Officer)                                                        |       |
| Brian A. Lutes                          |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
| /s/ Thomas J. Campbell                  |       | Secretary and Director                                                     |       | March 31, 2006 |
| Thomas J. Campbell                      |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
| /s/ Barry R. McCaffrey                  |       | Director                                                                   |       | March 31, 2006 |
| General Barry R. McCaffrey  (USA  Ret.) |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
| /s/ Joseph W. Prueher                   |       | Director                                                                   |       | March 31, 2006 |
| Admiral Joseph W. Prueher  (USN  Ret.)  |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
| /s/ Leighton W. Smith                   |       | Director                                                                   |       | March 31, 2006 |
| Admiral Leighton W. Smith  (USN  Ret.)  |       |                                                                       |       |                |
|                                    |       |                                                                       |       |                |
| /s/ Ramzi M. Musallam                   |       | Director                                                                   |       | March 31, 2006 |
| Ramzi M. Musallam                       |       |                                                                       |       |                |

 

52

----

 

SupplementalInformation to be Furnished with Reports Filed Pursuant to Section 15(d) ofthe Securities Exchange Act of 1934 by Registrants which have not RegisteredSecurities Pursuant to Section 12 of the Securities Exchange Act of 1934:

 

Noannual report or proxy materials have been sent to any registrant’s securityholders.

 

**Exhibit Index**

 
| **No.** | ** ** | **Description**                                                                                                                                                                                                                                                                           |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.1 (1) |       | Certificate of Formation of the TWC Holding LLC,  filed with the Delaware Secretary of State on January 29, 2004                                                                                                                                                                     |
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.2 (1) |       | Limited Liability Company Operating Agreement of  TWC Holding LLC, dated as of June 30, 2004                                                                                                                                                                                         |
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.3 (1) |       | Amendment No. 1 to the Limited Liability  Company Operating Agreement of TWC Holding LLC, effective as of August 18,  2004                                                                                                                                                      |
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.4(1)  |       | Amendment No. 2 to the Limited Liability  Company Operating Agreement of TWC Holding LLC, effective April 11,  2005.                                                                                                                                                            |
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.5(2)  |       | Amendment No. 3 to the Limited Liability  Company Operating Agreement of TWC Holding LLC, effective November 11,  2005.                                                                                                                                                         |
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.6 (1) |       | Certificate of Incorporation of TWC Holding Corp.,  filed with the Delaware Secretary of State on December 30, 2004                                                                                                                                                                  |
|    |       |                                                                                                                                                                                                                                                                                      |
| 3.4 (1) |       | Bylaws of TWC Holding Corp.                                                                                                                                                                                                                                                               |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.1(1)  |       | Indenture, dated as of February 11, 2005, by  and among the co-issuers and U.S. Bank National Association.                                                                                                                                                                           |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.2(1)  |       | Registration Rights Agreement, dated as of February 11,  2005, by an among the co-issuers and CIBC World Markets                                                                                                                                                                     |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.3(1)  |       | Form of 13.875% Senior PIK Notes due 2011  (included in Exhibit 4.1)                                                                                                                                                                                                            |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.4 (1) |       | Indenture, dated as of June 30, 2004, by and  among, the Registrant, The Wornick Company Right Away Division, The Wornick  Company Right Away Division, L.P., Right Away Management Corporation and U.S.  Bank National Association                                                  |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.5 (1) |       | Registration Rights Agreements, dated as of June 30,  2004, by and among the Registrant, The Wornick Company Right Away Division,  The Wornick Company Right Away Division, L.P., Right Away Management  Corporation, Jefferies & Company, Inc. and CIBC World Markets |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.3 (1) |       | Form of 107/8% Senior  Secured Notes due 2011                                                                                                                                                                                                                                        |
|    |       |                                                                                                                                                                                                                                                                                      |
| 4.4 (1) |       | Form of Guarantee                                                                                                                                                                                                                                                                    |

 

53

----

 
| **No.**    |       | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1(1)    |       | Purchase Agreement,  dated June 24, 2004, by and among Wornick, The Wornick Company Right  Away Division, The Wornick Company Right Away Division, L.P., Right Away  Management Corporation, Jeffries & Company, Inc. and CIBC World  Markets                                                                                                                                                                                                                    |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2 (1)   |       | Intercreditor Agreement, dated as of June 30,  2004, among the U.S. Bank National Association and Texas State Bank                                                                                                                                                                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3 (1)   |       | Security Agreement, dated as of June 30,  2004, by and among the Registrant, The Wornick Company Right Away Division,  The Wornick Company Right Away Division, L.P., Right Away Management  Corporation and U.S. Bank National Association, as collateral agent                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.4 (1)   |       | Loan Agreement, dated as of June 30, 2004, by  and among the Registrant, The Wornick Company Right Away Division, The  Wornick Company Right Away Division, L.P., Right Away Management Corporation  and Texas State Bank                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.5 (1)   |       | Revolving Line of Credit Promissory Note, dated June 30,  2004, by the Registrant in favor of Texas State Bank                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.6 (1)   |       | Guaranty (Continuing Debt-Unlimited), dated June 30,  2004, by The Wornick Company Right Away Division, The Wornick Company Right  Away Division, L.P., Right Away Management Corporation                                                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.7 (1)   |       | Security Agreement, dated as of June 30,  2004, by and between the Registrant, The Wornick Company Right Away Division,  The Wornick Company Right Away Division, L.P., Right Away Management  Corporation and Texas State Bank                                                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.8 (1)   |       | Pledge Agreement, dated as of June 30, 2004,  between TWC Holding LLC and Texas State Bank                                                                                                                                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.9 (1)   |       | Pledge Agreement, dated as of June 30, 2004,  between the Registrant, The Wornick Company Right Away Division, Right Away  Management Corporation and Texas State Bank                                                                                                                                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.10 (1)  |       | Assets Purchase and Sale Contract, dated December 3,  2003, by and among The Wornick Company, a Nevada corporation, The Wornick  Company Right Away Division, a Nevada corporation, The Wornick Company Right  Away Division, L.P., a Texas limited partnership, Right Away Management  Corporation, a Texas business corporation, as sellers, the Registrant, as buyer,  and Veritas Capital Management II, L.L.C., as a related person of the  Registrant                    |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.11 (1)  |       | Amendment No. 1 to Assets Purchase and Sale  Contract, dated May 4, 2004, by and among The Wornick Company, a Nevada  corporation, The Wornick Company Right Away Division, a Nevada corporation,  The Wornick Company Right Away Division, L.P., a Texas limited partnership,  Right Away Management Corporation, a Texas business corporation, as sellers,  the Registrant, as buyer, and Veritas Capital Management II, L.L.C., as a  related person of the Registrant |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12 (1)  |       | Amended and Restated Lease Agreement, effective December 30,  1994, between Ronald C. Wornick and Shelf Stable Foods, Inc., as amended  and assigned                                                                                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.13 (1)  |       | Standard Industrial Lease, dated March 4,  2003, between The Wornick Company Right Away Division, a Nevada corporation,  and 270 Sharyland, L.P., as assigned                                                                                                                                                                                                                                                                                                                  |

 

54

----

 
| **No.**   |   | **Description**                                                                                                                                                                                                             |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                        |
| 10.14 (1) |   | Standard Form Industrial Building Lease  (Multi-Tenant), dated March 21, 2003, between The Wornick Company, a  Nevada corporation, and First Industrial LP, as assigned                                           |
|      |   |                                                                                                                                                                                                                        |
| 10.15 (1) |   | Lease Agreement, dated November 29, 1995,  between The Wornick Company, a Nevada corporation, and Ronald C. Wornick, as  amended and assigned                                                                          |
|      |   |                                                                                                                                                                                                                        |
| 10.16 (1) |   | Contract No. SPO300-03-D-Z107 (MRE Contract),  effective March 31, 2003, between Defense Supply Center Philadelphia and  The Wornick Company Right Away Division, a Nevada corporation, as modified  and assigned |
|      |   |                                                                                                                                                                                                                        |
| 10.17 (1) |   | Contract No. SPM300-04-D-Z217 (UGR-A  Contract), effective July 19, 2004, between Defense Supply Center  Philadelphia and The Wornick Company Right Away Division, as modified                                    |
|      |   |                                                                                                                                                                                                                        |
| 10.18 (1) |   | Novation Agreement, entered into as of July 1,  2004, by and among The Wornick Company, a Nevada corporation, The Wornick  Company Right Away Division, L.P. and the United States of America                          |
|      |   |                                                                                                                                                                                                                        |
| 10.19 (1) |   | Amendment of Solicitation/Modification of  Contract, signed October 14, 2004, between DCMA San Antonio and The  Wornick Company Right Away Division, L.P.                                                              |
|      |   |                                                                                                                                                                                                                        |
| 10.20(1)  |   | Employment Agreement, dated as of April 11,  2005, by and between the Wornick Company and Michael M. Thompson.                                                                                                         |
|      |   |                                                                                                                                                                                                                        |
| 10.21(1)  |   | Letter Agreement, dated April 13, 2005, by  and between the Wornick Company and John F. McQuay.                                                                                                                        |
|      |   |                                                                                                                                                                                                                        |
| 14.1 (3)  |   | Code of Business Conduct and Ethics                                                                                                                                                                                         |
|      |   |                                                                                                                                                                                                                        |
| 21.1 (1)  |   | Subsidiaries of the Co-issuers                                                                                                                                                                                              |
|      |   |                                                                                                                                                                                                                        |
| 31.1 (*)  |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (President and Chief Executive Officer)                                                                                                       |
|      |   |                                                                                                                                                                                                                        |
| 31.2 (*)  |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (Chief Financial Officer)                                                                                                                     |
|      |   |                                                                                                                                                                                                                        |
| 32.1 (*)  |   | Certification pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (President and Chief Executive Officer)                                                  |
|      |   |                                                                                                                                                                                                                        |
| 32.2 (*)  |   | Certification pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (Chief Financial Officer)                                                                |

 

----

| (1)    |   | Included as an exhibit to the Registrant’s  Registration Statement on Form S-4 (File No. 333-124826), filed  with the Commission on May 27, 2004, and incorporated herein by  reference. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                   |
| (2)    |   | Included as an exhibit to the Registrant’s  filing on Form 10-Q, filed with the Commission on November 15, 2005  and incorporated herein by reference.                                             |
|   |   |                                                                                                                                                                                                                   |
| (3)    |   | Included as an exhibit to the Registrant's wholly  owned subsidiary, Wornick's, Form 10-K, filed with the Commission on March  31, 2005 and incorporated herein by reference.                                          |
|   |   |                                                                                                                                                                                                                   |
| (*)    |   | Filed herewith.                                                                                                                                                                                                        |

 

55

----

 
| Reports of Independent  Registered Public Accounting Firm                                                                                                                                                                                                                                                                                     |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                          |       |
| **Consolidated Financial Statements**                                                                                                                                                                                                                                                                                                         | ** ** |
|                                                                                                                                                                                                                                                                                                                                          |       |
| Consolidated Balance Sheets of Successor at December 31,  2004 and December 31, 2005                                                                                                                                                                                                                                                |       |
|                                                                                                                                                                                                                                                                                                                                          |       |
| Consolidated Statements of Operations  (Predecessor) for the Year Ended December 31, 2003 and for the Period  from January 1, 2004 to June 30, 2004, and (Successor) for the  Period from July 1, 2004 through December 31, 2004 and for the Year  Ended December 31, 2005                                      |       |
|                                                                                                                                                                                                                                                                                                                                          |       |
| Consolidated Statements of  Changes in Stockholder’s Equity (Predecessor) for the Years Ended December 31,  2003 and for the Period from January 1, 2004 through June 30, 2004,  and (Successor) for the Period from July 1, 2004 through December 31, 2004  and for the Year Ended December 31, 2005 |       |
|                                                                                                                                                                                                                                                                                                                                          |       |
| Consolidated Statements of Cash Flows  (Predecessor) for the Year Ended December 31, 2003, and for the Period  from January 1, 2004 to June 30, 2004, and (Successor) for the  Period from July 1, 2004 through December 31, 2004 and for the Year  Ended December 31, 2005                                     |       |
|                                                                                                                                                                                                                                                                                                                                          |       |
| Notes to the Consolidated  Financial Statements                                                                                                                                                                                                                                                                                               |       |

 

F-1

----

 

**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directors and Members

of TWC Holding LLC, a Delaware Corporation

 

In our opinion, the accompanying consolidatedbalance sheets and the related consolidated statements of operations, ofchanges in stockholder’s equity and of cash flows present fairly, in all materialrespects, the financial position of TWC Holding LLC and its subsidiaries, aDelaware corporation (the “Successor”), at December 31, 2005 and 2004, andthe results of their operations and their cash flows for the year ended December 31,2005 and for the period from July 1, 2004 through December 31, 2004,in conformity with accounting principles generally accepted in the UnitedStates of America. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits. We conducted our audits of thesestatements in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits provides a reasonable basis for our opinion.

 

 
| /s/ PricewaterhouseCoopers LLP |   |
|--------------------------------|--------|
| Minneapolis, Minnesota         |
| March 29, 2006            |

 

F-2

----

 

**Report ofIndependent Registered Public Accounting Firm**

 

To the Board of Directors and Stockholders

of The Wornick Company, a Nevada Corporation

 

In our opinion, the accompanying consolidatedstatements of operations, of changes in stockholder’s equity and of cash flowspresent fairly, in all material respects, the results of operations and cashflows of The Wornick Company and its subsidiaries, a Nevada Corporation (thePredecessor) for the year ended December 31, 2003 and for the period from January 1,2004 through June 30, 2004, in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

 
| /s/ PricewaterhouseCoopers LLP |   |
|--------------------------------|--------|
| Minneapolis, Minnesota         |
| March 29, 2005            |

 

F-3

----

 

**TWC HOLDINGLLC**

**CondensedConsolidated**

**Balance Sheets**

 
| ** **                                       | ** ** | **December 31,** | ** **  |
|--------------------------------------------------|------------|-----------------------|-------------|
| ** **                                       | ** ** | **2004**              | ** **  | **2005** | ** ** |
| **Assets**                                       |       |                  |        |   |   |
| Current  assets                                  |       |                  |        |   |   |
| Cash and  cash equivalents                       |       | $                     | 3,289,030   |   | $ | 17,334,734 |   |
| Trade  accounts receivable, net                  |       | 13,856,294            |        | 19,186,813 |   |
| Inventories                                      |       | 24,132,116            |        | 27,954,296 |   |
| Prepaid  expenses and other current assets       |       | 531,106               |        | 630,245 |   |
| Deferred  income taxes                           |       | 847,442               |        | 1,403,035 |   |
| Total  current assets                            |       | 42,655,988            |        | 66,509,122 |   |
|                                             |       |                  |        |   |   |
| Property and  equipment, net                     |       | 32,794,239            |        | 42,914,227 |   |
| Goodwill                                         |       | 77,573,207            |        | 77,573,207 |   |
| Intangible  assets, net                          |       | 21,822,710            |        | 17,128,127 |   |
| Other  noncurrent assets                         |       | 5,675,939             |        | 7,224,698 |   |
| Total assets                                     |       | $                     | 180,522,083 |   | $ | 211,349,381 |   |
| **Liabilities  and Stockholder’s Equity**   |       |                  |        |   |   |
| Current  liabilities                             |       |                  |        |   |   |
| Trade  accounts payable                          |       | $                     | 6,167,826   |   | $ | 19,900,050 |   |
| Accrued  expenses                                |       | 3,122,446             |        | 8,331,770 |   |
| Accrued  interest                                |       | 6,796,875             |        | 6,276,896 |   |
| Taxes  payable                                   |       | 51,950                |        | 977,237 |   |
| Total  current liabilities                       |       | 16,139,097            |        | 35,485,953 |   |
| Deferred  income taxes and other liabilities     |       | 912,067               |        | 4,456,475 |   |
| Long-term  debt                                  |       | 125,000,000           |        | 154,335,507 |   |
| Total  liabilities                               |       | 142,051,164           |        | 194,277,935 |   |
| **Commitments  and Contingencies**               |       |                  |        |   |   |
| Member’s  equity                            |       |                  |        |   |   |
| Member’s  interest                          |       | 37,500,000            |        | 14,038,007 |   |
| Additional  paid-in capital                      |       | 146,400               |        | 232,680 |   |
| Retained  earnings                               |       | (22,923               | )           | 2,800,759 |   |
| Total  stockholder’s equity                 |       | 37,623,477            |        | 17,071,446 |   |
| Total liabilities  and stockholder’s equity |       | $                     | 179,674,641 |   | $ | 211,349,381 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F-4

----

 

**TWC HOLDINGLLC**

**CondensedConsolidated**

**Statement of Operations**

 
| ** **                                    | ** ** | **Predecessor**                                  | ** **  | **Successor**                                                                | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|-------------|------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Year Ended  December 31, 2003** | ** **  | **Period from  January 1, 2004  to  June 30, 2004** | ** ** | **Period from  July 1, 2004  to  December 31, 2004** | ** ** | **Year Ended  December 31, 2005** | ** ** |
|                                          |       |                                             |        |                                                                         |       |   |   |   |   |
| Net sales                                     |       | $                                                | 318,370,159 |                                                                         | $          | 80,923,839 |   | $ | 100,380,764 |   | $ | 257,878,405 |   |
| Cost of  sales                                |       | 265,447,298                                      |        | 67,752,882                                                                   |       | 83,307,805 |   | 210,896,928 |   |
| Gross profit                                  |       | 52,922,861                                       |        | 13,170,957                                                                   |       | 17,072,959 |   | 46,981,477 |   |
| Selling,  general and administrative expenses |       | 27,008,208                                       |        | 12,458,600                                                                   |       | 9,072,317 |   | 23,460,518 |   |
| Operating  profit                             |       | 25,914,653                                       |        | 712,357                                                                      |       | 8,000,642 |   | 23,520,959 |   |
| Other  (expense) income                       |       |                                             |        |                                                                         |       |   |   |   |   |
| Interest  income                              |       | 244,365                                          |        | 506,553                                                                      |       | 87,029 |   | 209,876 |   |
| Interest  expense                             |       | (537,025                                         | )           | (99,791                                                                      | )          | (7,150,481 | ) | (18,073,314 | ) |
| Other income  (expense), net                  |       | 979,813                                          |        | 369,274                                                                      |       | 3,904 |   | (201,027 | ) |
| Total other  income (expense)                 |       | 687,153                                          |        | 776,036                                                                      |       | (7,059,548 | ) | (18,064,465 | ) |
| Income  before income taxes                   |       | 26,601,806                                       |        | 1,488,393                                                                    |       | 941,094 |   | 5,456,494 |   |
| Income tax  (benefit) expense                 |       | 439,098                                          |        | 41,052                                                                       |       | 964,017 |   | 2,632,812 |   |
| Net  income/(loss)                            |       | $                                                | 26,162,708  |                                                                         | $          | 1,447,341 |   | $ | (22,923 | ) | $ | 2,823,682 |   |
|                                          |       |                                             |        |                                                                         |       |   |   |   |   |
| Pro forma  income data (unaudited)            |       |                                             |        |                                                                         |       |   |   |   |   |
| Income  before income taxes                   |       | $                                                | 26,601,806  |                                                                         | $          | 1,488,393 |   |   |   |   |   |
| Pro forma  income tax expense                 |       | 11,507,106                                       |        | 949,825                                                                      |       |   |   |   |   |
| Pro forma  net income                         |       | $                                                | 15,094,700  |                                                                         | $          | 538,568 |   |   |   |   |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F-5

----

 

**TWC HOLDINGLLC**

**Consolidated Statement of Changes in Member’s Equity**

 
| ** **                                                  | ** ** | ** **            | ** ** | ** ** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Unearned  Shares of  Employee Stock  Ownership  Trust** | ** ** | **Retained  Earnings** | ** **  | **Total**  | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|------------|------------|----------------------------------|------------|----------------------------------------------------------------|------------|------------------------|-------------|------------|------------|
| ** **                                                  | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                       |
| ** **                                                  | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                       |
| ** **                                                  | ** ** | **Common Stock** | ** ** | ** ** |
| **Predecessor**                                             | ** ** | **Shares**            | ** ** | **Amount** | ** ** | ** **                       |
| **Balances  at December 31, 2002**                     |       | 5,000,000             |       | $          | 50,000     |                             | $          | 27,971,302                                                     |       | $                      | (11,990,660 | )          | $          | 7,468,144 |   | $ | 23,498,786 |   |
|                                                        |       |                  |       |       |       |                             |       |                                                           |       |                   |        |       |       |
| Net income                                                  |       | —                |       | —     |       | —                           |       | —                                                         |       | 26,162,708             |        | 26,162,708 |       |
| Release of  earned shares of Employee Stock Ownership Trust |       | —                |       | —     |       | 5,666,366                        |       | 1,827,089                                                      |       | —                 |        | 7,493,455  |       |
| **Balances  at December 31, 2003**                     |       | 5,000,000             |       | 50,000     |       | 33,637,668                       |       | (10,163,571                                                    | )          | 33,630,852             |        | 57,154,949 |       |
| Net income                                                  |       |                  |       |       |       |                             |       |                                                           |       | 1,447,341              |        | 1,447,341  |       |
| Release of  earned shares of Employee Stock Ownership Trust |       | —                |       | —     |       | 1,823,044                        |       | 521,248                                                        |       | —                 |        | 2,344,292  |       |
| **Balances  at June 30, 2004**                         |       | 5,000,000             |       | $          | 50,000     |                             | $          | 35,460,712                                                     |       | $                      | (9,642,323  | )          | $          | 35,078,193 |   | $ | 60,946,582 |   |

 
| ** **                                  | ** ** | ** **              | ** ** | **Additional  Paid-in****Capital** | ** ** | ** ** | ** ** | **Retained****Earnings/(Deficit)** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|------------------------------------|------------|------------|------------|------------------------------------|------------|-----------|------------|
| ** **                                  | ** ** | **Members Equity** | ** ** | ** **                         |
| **Successor**                               | ** ** | **Units**               | ** ** | **Amount**                         | ** ** | ** ** |
| **Balances  at June 30, 2004**         |       | —                  |       | $                                  | —     |       | $          | —                             |       | $         | —     |   | $ | — |   | $ | — |   |
|                                        |       |                    |       |                               |       |       |       |                               |       |      |       |   |   |   |
| Issuance of  member interest upon formation |       | 100                     |       | $                                  | 37,500,000 |       | —     |                               |       |      |       |   | 37,500,000 |   |
| Equity  compensation expense                |       | —                  |       | —                             |       | 146,400    |       | —                             |       | —    |       | 146,400 |   |
| Net loss                                    |       | —                  |       | —                             |       | —     |       | —                             |       | (22,923   | )          | (22,923 | ) |
| **Balances  at December 31, 2004**     |       | 100                     |       | 37,500,000                         |       | 146,400    |       | —                             |       | (22,923   | )          | 37,623,477 |   |
| Return of  capital                          |       | —                  |       | (23,461,993                        | )          | —     |       | —                             |       | —    |       | (23,461,993 | ) |
| Equity  compensation expense                |       |                    |       |                               |       |       |       |                               |       | 86,280    |       | 86,280 |   |
| Net income                                  |       | —                  |       | —                             |       | —     |       | —                             |       | 2,823,682 |       | 2,823,682 |   |
| **Balances  at December 31, 2005**     |       | 100                     |       | $                                  | 14,038,007 |       | $          | 232,680                            |       | $         | —     |   | $ | 2,800,759 |   | $ | 17,071,446 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

F-6

----

 

**TWC HOLDINGLLC**

**CondensedConsolidated**

**Statements of Cash Flows**

 
| ** **                                                                                        | ** ** | **Predecessor**                         | ** ** | **Successor**                                                 | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                        | ** ** | **Year Ended  December 31,  2003** | ** ** | **Period from  January 1, 2004  to  June 30, 2004** | ** ** | **Period from  July 1, 2004  to  December 31,  2004** | ** ** | **Year Ended  December 31,  2005** |   |
| **Cash  flows from operating activities**                                                         |       |                                    |       |                                                          |       |   |   |   |   |
| Net income                                                                                        |       | $                                       | 26,162,708 |                                                          | $          | 1,447,341 |   | $ | (22,923 | ) | $ | 2,823,682 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities |       |                                    |       |                                                          |       |   |   |   |   |
| Depreciation  of property and equipment                                                           |       | 2,299,744                               |       | 1,386,904                                                     |       | 1,755,861 |   | 3,926,058 |   |
| Amortization  of intangibles                                                                      |       | —                                  |       | —                                                        |       | 2,347,290 |   | 4,694,583 |   |
| Amortization  of inventory step-up                                                                |       | —                                  |       | —                                                        |       | 1,767,037 |   | — |   |
| Amortization  of bond issuance cost                                                               |       | —                                  |       | —                                                        |       | 294,942 |   | 1,018,471 |   |
| Loss on  disposal of assets                                                                       |       | 10,648                                  |       | —                                                        |       | 71,500 |   | — |   |
| Deferred  income tax (benefit) expense                                                            |       | 181,500                                 |       | —                                                        |       | 912,067 |   | 1,707,525 |   |
| Interest  expense on Senior PIK Notes                                                             |       | —                                  |       | —                                                        |       | — |   | 3,335,508 |   |
| Compensation  expense for Employee Stock                                                          |       |                                    |       |                                                          |       |   |   |   |   |
| Ownership  Trust shares released and committed to be released                                     |       | 7,493,455                               |       | 2,344,292                                                     |       | — |   | — |   |
| Compensation  expense for stock options                                                           |       | 5,364,485                               |       | 713,433                                                       |       | — |   | — |   |
| Other  stock-based compensation expense                                                           |       | 833,269                                 |       | 3,266,814                                                     |       | 146,400 |   | 86,280 |   |
| Stock  compensation plans                                                                         |       | —                                  |       | (4,270,995                                                    | )          | — |   | — |   |
| Changes in  assets and liabilities                                                                |       |                                    |       |                                                          |       |   |   |   |   |
| Trade  accounts receivable                                                                        |       | (1,891,101                              | )          | 1,189,462                                                     |       | (13,856,294 | ) | (5,330,519 | ) |
| Inventories                                                                                       |       | (893,050                                | )          | (4,693,075                                                    | )          | 1,163,623 |   | (3,822,180 | ) |
| Prepaid  expenses and other current assets                                                        |       | (519,341                                | )          | 162,149                                                       |       | (531,107 | ) | (99,139 | ) |
| Other  noncurrent asset                                                                           |       | (242,329                                | )          | (56,901                                                       | )          | (62,113 | ) | (61,596 | ) |
| Trade  accounts payable and accrued expenses                                                      |       | (3,975,129                              | )          | (1,961,207                                                    | )          | 9,290,272 |   | 18,941,548 |   |
| Accrued bond  interest                                                                            |       | —                                  |       | —                                                        |       | 6,796,875 |   | (519,979 | ) |
| Taxes  payable                                                                                    |       | (273,347                                | )          | —                                                        |       | 51,950 |   | 925,287 |   |
| Net cash  provided by (used in) operating activities                                         |       | 34,551,512                              |       | (471,783                                                      | )          | 10,125,380 |   | 27,625,529 |   |
| **Cash  flows from investing activities**                                                         |       |                                    |       |                                                          |       |   |   |   |   |
| Payments  received on notes receivable                                                            |       | 810,705                                 |       | 610,100                                                       |       | — |   | — |   |
| Proceeds  from the sale of investments                                                            |       | 3,000,000                               |       | 19,988,514                                                    |       | — |   | — |   |
| Purchase of  investments                                                                          |       | (8,993,000                              | )          | (30,007,514                                                   | )          | — |   | — |   |
| Business  acquired                                                                                |       | —                                  |       | —                                                        |       | (165,035,252 | ) | — |   |
| Capital expenditures                                                                              |       | (12,525,994                             | )          | (2,382,720                                                    | )          | (4,301,098 | ) | (13,612,198 | ) |
| Net cash  used in investing activities                                                            |       | (17,708,289                             | )          | (11,791,620                                                   | )          | (169,336,350 | ) | (13,612,198 | ) |
| **Cash  flows from financing activities**                                                         |       |                                    |       |                                                          |       |   |   |   |   |
| Change in  book overdrafts                                                                        |       | 587,080                                 |       | 243,027                                                       |       | — |   | — |   |
| Net  (decrease) increase in the line of credit                                                    |       | (9,400,000                              | )          | 8,700,000                                                     |       | — |   | — |   |
| Proceeds  from issuance of long-term debt                                                         |       | 61,653                                  |       | —                                                        |       | 125,000,000 |   | 26,000,000 |   |
| Capitalized  bond issuance cost                                                                   |       | —                                  |       | —                                                        |       | — |   | (2,505,634 | ) |
| Principal  payments on long-term debt                                                             |       | (3,843,660                              | )          | (629,305                                                      | )          | — |   | — |   |
| Proceeds  from issuance of common stock                                                           |       | —                                  |       | —                                                        |       | 37,500,000 |   |   |   |
| Return of  Capital                                                                                |       |                                    |       |                                                          |       |   |   | (23,461,993 | ) |
| Net cash  (used in) provided by financing activities                                              |       | (12,594,927                             | )          | 8,313,722                                                     |       | 162,500,000 |   | 32,373 |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | 4,248,296                               |       | (3,949,681                                                    | )          | 3,289,030 |   | 14,045,704 |   |
| **Cash and  cash equivalents**                                                                    |       |                                    |       |                                                          |       |   |   |   |   |
| Beginning of  period                                                                              |       | 1,042,371                               |       | 5,290,667                                                     |       | — |   | 3,289,030 |   |
| End of  period                                                                                    |       | $                                       | 5,290,667  |                                                          | $          | 1,340,986 |   | $ | 3,289,030 |   | $ | 17,334,734 |   |
| **Supplemental  disclosure of cash flow information**                                             |       |                                    |       |                                                          |       |   |   |   |   |
| Cash paid  during the period for interest                                                         |       | $                                       | 537,025    |                                                          | $          | 77,114 |   | $ | 58,663 |   | $ | 13,673,011 |   |
| Taxes paid  during the period, net of refund                                                      |       | 480,354                                 |       | 41,052                                                        |       | 122,925 |   | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

F-7

----

 

**1.****                                     ****Organization and Basis ofPresentation**

 

TWCHolding LLC (the “Company” or “Successor”) and its wholly owned subsidiary, TheWornick Company, a Delaware corporation ( “Wornick” or “Operating Company”), areacquisition vehicles formed by The Veritas Capital Fund II, L.P., and itsgeneral partner, Veritas Capital Management II, L.L.C. (collectively “Veritas”),entered into an Assets Purchase and Sale Contract with The Wornick Company, aNevada corporation (the “Predecessor”), and its subsidiaries, The WornickCompany Right Away Division, a Nevada corporation, The Wornick Company RightAway Division, L.P., a Texas limited partnership, and Right Away ManagementCorporation, a Texas corporation. The Assets Purchase and Sale Contract wasconsummated on June 30, 2004, and resulted in the purchase by theSuccessor and its subsidiaries, and the sale by the Predecessor and itssubsidiaries, of the business of the Predecessor and its subsidiaries as agoing concern, including substantially all of the operating assets of thePredecessor and its subsidiaries.

 

TheCompany, through the Operating Company (Wornick) produces, packages anddistributes extended shelf-life foods, both shelf stable and frozen, inflexible pouches and semi-rigid containers, primarily for the U.S. Departmentof Defense and commercial customers.

 

Asdiscussed above, the Assets Purchase and Sale Contract was consummated on June 30,2004. As such, the financial information presented represents: (i) theConsolidated Balance Sheet of the Successor at December 31, 2004, and December 31,2005; (ii) the Consolidated Statements of Operations of the Predecessorfor the year ended December 31, 2003 and the six-month period ended June 30,2004, and of the Successor for the six-month period ended December 31,2004 and for the year ended December 31, 2005; (iii) the ConsolidatedStatement of Changes in Stockholder’s Equity of the Predecessor for the yearended December 31, 2003 and the six-month period ended June 30, 2004and of the Successor for the six-month period ended December 31, 2004 andthe year ended December 31, 2005 and (iv) the Consolidated Statementsof Cash Flows of the Predecessor for the year ended December 31, 2003 andthe six-month period ended June 30, 2004, and the Successor for thesix-month period ended December 31, 2004 and for the year ended December 31,2005.

 

**2.****                                     ****Acquisition**

 

OnJune 30, 2004 (the “Acquisition Date”), pursuant to the Assets Purchaseand Sale Contract described above in Note 1, the Operating Company acquired allof the operating assets of the Predecessor. The acquisition was financedthrough a combination of debt and equity issuances. The purchase price of$165.0 million included approximately $10.1 million of transaction costs. Goodwillof $77.6 million represented the excess of the acquisition cost over theestimated fair value of the identifiable assets acquired. The identifiableintangible assets relate to the value of existing long-term customer supplycontracts in place at the Acquisition Date. The purchase price has beenallocated to the assets acquired in accordance with the purchase method ofaccounting as follows:

 
| Inventory                    |   | $          | 27,062,776  |   |
|------------------------------|--------|------------|-------------|--------|
| Property and  equipment      |   | 30,320,502 |        |
| Intangible  assets           |   | 24,170,000 |        |
| Goodwill                     |   | 77,573,207 |        |
| Deferred  debt issuance cost |   | 4,458,990  |        |
| Other  noncurrent assets     |   | 1,449,777  |        |
|                         |   | $          | 165,035,252 |   |

 

Infinancing the acquisition, the Operating Company received $165.5 million inproceeds from debt and equity financing, including a $3.0 million advance on aworking capital line.

 

F-8

----

 

Summaryselected pro forma information of the Predecessor as though the transactionwere completed at the beginning of the respective period presented (and asthough the Company were taxed as a C-Corporation) is as follows:

 
| **(in thousands of dollars)** | ** ** | **December 31,  2003** | ** ** | **Six-Month  Period Ended  June 30, 2004** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------------------|------------|
|                                         |       |                        |       |                                                      |       |
| Net sales                                    |       | $                           | 318,370    |                                                      | $          | 80,924 |   |
| Net income (loss)                            |       | 2,118                       |       | (5,950                                                    | )          |
|                                              |            |                             |            |                                                           |            |  |  |

 

**3.****                                     ****Summary of SignificantAccounting Policies**

 

**Basis of Presentation**

 

TheCompany’s consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of America. Theconsolidated financial statements include the accounts of TWC Holding LLC,Wornick and its subsidiaries. All significant intercompany balances andtransactions have been eliminated in consolidation.

 

**Cash and Cash Equivalents**

 

TheCompany considers all highly liquid debt instruments with original maturitiesof three months or less to be cash and cash equivalents.

 

**Accounts Receivable**

 

Accountsreceivable are recorded at the invoiced amount and do not bear interest. Theallowance for doubtful accounts represents the Company’s best estimate ofprobable credit losses in its existing accounts receivable. The Companycontinuously reviews the accuracy of its allowance for doubtful accounts. Historicallythe Company has had very minimal bad debts due to its customer base. Inaddition, the Company does not have any off-balance sheet credit exposurerelated to its customers.

 

**Fair Value of Financial Instruments**

 

Therecorded values of financial instruments, including accounts receivable, otherassets, and accounts payable, approximate fair value due to their shortmaturity. The carrying value of the revolving line of credit (zero at December 31,2004 and 2005) approximates fair value due to its variable interest rate. Therecorded value of the long-term debt approximates fair value based on borrowingrates currently available to the Company for financing arrangements withsimilar terms and average maturities.

 

**Concentration of Credit Risk**

 

Financialinstruments that potentially subject the Company to concentration of creditrisk have historically consisted of cash and cash equivalents, trade accountsreceivable, and marketable securities. The Company’s cash and cash equivalentsare held at financial institutions and may at times exceed federallyinsured limits. To minimize risk, the Company maintains its cash and cashequivalents at financial institutions with high credit ratings.  The Company’s trade accounts receivable areconcentrated with a significant customer. See Note 12 for additionalinformation regarding this significant customer.

 

**Derivative Financial Instruments**

 

Fromtime to time, the Company enters into foreign currency forward contracts tomanage certain exposures to fluctuations in foreign currency exchange rates forthe Canadian dollar. Changes in the fair value of derivatives are recorded incurrent earnings along with the change in the fair value of the underlyinghedged item.

 

Cashflows from financial instruments are recognized in the consolidated statementsof cash flows in a manner consistent with the underlying hedged transactions. AtDecember 31, 2003 and June 30, 2004, the Predecessor had nooutstanding derivative instruments. At December 31, 2004, the Company hadone

 

F-9

----

 

outstandingderivative instrument, the fair value of which was not significant. Duringfiscal year 2005, all sales were denominated in U.S. dollars and therefore theCompany did not enter into any foreign currency forward contracts.

 

**Inventories**

 

Inventoriesare stated at the lower of cost or market, with cost being determined using thefirst-in, first-out (“FIFO”) method. Costs included in inventories consist ofmaterials, labor, and fixed and variable manufacturing overhead which arerelated to the purchase and production of inventories.

 

**Property and Equipment**

 

Propertyand equipment are stated at cost. Depreciation and amortization of property andequipment are provided using the straight-line method over the estimated usefullives of the assets, which range as follows:

 
| Leasehold  improvements                   | lessor of the term of the lease or  life of the asset |   |
|-------------------------------------------|-------------------------------------------------------|--------|
|                                      | (Generally 3 to 10 years)                             |   |
| Machinery &  equipment           | 5 to 15 years                                         |   |
| Office  equipment, furniture and vehicles | 3 to 7 years                                          |   |

 

Whenproperty and equipment are retired or sold, the cost and related accumulateddepreciation are removed from the accounts with any gain or loss recognized inoperations. Repairs and maintenance are charged to expense as incurred.

 

TheCompany assesses the impairment of property and equipment whenever events orchanges in circumstances indicate that the carrying amount of the asset may notbe recoverable. An impairment loss would be recognized when the carrying amountof the asset exceeds the estimated undiscounted future cash flows expected toresult from the use of the asset and its eventual disposition. The impairmentto be recorded would be the excess of the assets carrying value over its fairvalue. Fair value would be determined based upon the best information availablein the circumstances including quoted prices or other valuation techniques.

 

TheCompany maintains asset retirement obligations in connection with leasearrangements on its manufacturing facilities. The related asset retirementobligations are recognized as expense over the lease term.

 

**Goodwill**

 

Goodwillis stated at cost and not amortized.  Thecarrying value of goodwill is tested for impairment at least annually. Therecoverability of goodwill is based upon the fair value of the Company which isdetermined by using a discounted cash flow analysis. The Company has completedits annual impairment test of goodwill and has determined that there is noimpairment at December 31, 2005.

 

**Intangibles**

 

Contractor separable intangible assets that have finite lives are being amortizedagainst income using the straight-line method over their estimated usefullives, with periods ranging up to eight years. The straight-line method ofamortization reflects an appropriate allocation of the cost of the intangibleassets to earnings in proportion to the amount of economic benefits obtained bythe Company in each reporting period. The Company tests finite-lived intangibleassets for impairment whenever there is an impairment indicator. Intangibleassets are tested for impairment by comparing anticipated undiscounted futurecash flows from operations to net book value.

 

**Shipping and Handling Fees and Costs**

 

TheCompany classifies shipping and handling fees and costs as a component of costof sales.

 

F-10

----

 

**Income Taxes**

 

Priorto the Transaction and sale of assets, the Predecessor was taxed as aSub-Chapter S corporation for federal income tax purposes. Prior to January 2003,the Predecessor was subject to Texas Franchise Tax. Beginning in January 2003,the Predecessor (and the Successor) were not subject to Texas Franchise Tax. Inconnection with the transaction, effective July 1, 2004, the Successor willbe taxed as an LLC (similar to a partnership under Subchapter W of the InternalRevenue Code). However, the Operating Company will be taxed as a C-Corporation.

 

Deferredtax assets and liabilities of the Operating Company are recognized future taxconsequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax basis andoperating loss and tax carryforwards. Deferred tax assets and liabilities weremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxstatus or tax rates is recognized in income in the period that includes theenactment date. The deferred tax assets are reviewed for recoverability andvaluation allowances are provided as necessary.

 

**Revenue Recognition**

 

Werecognize revenue from product sales when title and risk of loss transfers tothe customer, which is generally upon shipment. We record estimated discountsas a reduction in revenue in the same period revenue is recognized based onhistorical experience.

 

OurU.S. Government contracts typically fall into two categories, fixed-pricecontracts and indefinite delivery, indefinite quantity contracts. In a fixed-pricecontract, the price is based on a pre-determined rate and is not subject toadjustment. Indefinite delivery, indefinite quantity contracts are subject tocomponent pricing. This component pricing is subject to retroactive auditadjustment by the Department of Defense. The magnitude of any such adjustmenthas historically been immaterial.

 

**Use of Estimates in Financial Statements**

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

 

**Stock-Based Compensation Related to Stock Option Plans**

 

Aspermitted by the Statement of Financial Accounting Standards (“SFAS”) No. 123,*Accounting for Stock-Based Compensation*,the Predecessor elected to apply the provision of Accounting Principles BoardOpinion No. 25, *Accounting for StockIssued to Employees* (“Opinion No. 25”), in recognizing costsassociated with the Predecessor’s stock option plans. Under Opinion No. 25,compensation was measured as the difference between the option’s exercise priceand the fair value of the underlying shares at the measurement date andsubsequent changes in the fair value of the underlying shares through the datethe option is exercised or otherwise settled. The measurement date was thefirst date on which both the number of shares subject to the option and theoption exercise price are known. As described further in Note 10, all ofthe Predecessor’s option arrangements were compensatory. The relatedcompensation expense has been determined based upon the estimated fair valuesof the Predecessor’s common stock. As described further in Note 11, theSuccessor currently has no stock compensation arrangements except for theissuance to certain members of management Class B member units, which vestover five years.

 

**Reclassification**

 

Certainreclassifications were made to the 2004 balance sheet to conform with thecurrent year presentation. The reclassifications had no effect on previouslyreported net income or members equity.

 

F-11

----

 

**4.****                                     ****Supplemental Balance SheetInformation**

 

**Inventories**

 

Asummary of inventories is as follows:

 
| ** **       | ** ** | **Successor**               | ** ** |
|------------------|------------|-----------------------------|------------|
| ** **       | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
|             |       |                        |       |   |   |
| Raw  materials   |       | $                           | 15,187,856 |   | $ | 17,389,308 |   |
| Work in  process |       | 1,838,828                   |       | 1,593,696 |   |
| Finished  goods  |       | 7,105,432                   |       | 8,971,292 |   |
|             |       | $                           | 24,132,116 |   | $ | 27,954,296 |   |

 

**Property and Equipment, Net**

 

Asummary of property and equipment, net is as follows:

 
| ** **                                       | ** ** | **Successor**               | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
|                                             |       |                        |       |   |   |
| Leasehold  improvements                          |       | $                           | 1,771,322  |   | $ | 1,784,800 |   |
| Machinery  and equipment                         |       | 26,166,475                  |       | 30,166,266 |   |
| Office  equipment, fixtures and vehicles         |       | 2,395,476                   |       | 2,640,021 |   |
| Construction  in progress                        |       | 4,216,827                   |       | 14,005,059 |   |
|                                             |       | 34,550,100                  |       | 48,596,146 |   |
| Less:  Accumulated depreciation and amortization |       | 1,755,861                   |       | 5,681,919 |   |
|                                             |       | $                           | 32,794,239 |   | $ | 42,914,227 |   |

 

Depreciationexpense of the Successor for the six-months ended December 31, 2004 andthe year ended December 31, 2005, was $1,755,861 and $3,926,058,respectively.

 

**Accrued Expenses**

 

Accruedexpenses are comprised of the following:

 
| ** **                               | ** ** | **Successor**               | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **December 31,  2004** | ** ** | **December 31,  2005** | ** ** |
|                                     |       |                        |       |   |   |
| Compensation                             |       | $                           | 1,376,404  |   | $ | 3,973,327 |   |
| Accrued government  contract liabilities |       | 35,264                      |       | 1,933,750 |   |
| Other                                    |       | 1,710,778                   |       | 2,424,693 |   |
|                                     |       | $                           | 3,122,446  |   | $ | 8,331,770 |   |

 

**5.****                                     ****Intangible Assets**

 

Inconnection with the acquisition described in Note 2, a portion of thepurchase price was allocated to identifiable intangible assets related to thevalue of long-term customer supply contracts in place at the Acquisition Date. Theoriginal value of these contracts was $24,170,000 and their useful lives rangefrom three to eight years. Expense related to amortization of intangible assetsfor the six-months ended

 

F-12

----

 

December 31,2004, and for the year ended December 31, 2005 amounted to $2,347,290 and$4,694,583, respectively.

 

Scheduledamortization of these assets is as follows:

 
| ** ** | ** ** | **December 31,  2005** | ** ** |
|------------|------------|-----------------------------|------------|
| 2006       |       | $                           | 4,694,580  |   |
| 2007       |       | 4,627,918                   |       |
| 2008       |       | 4,856,248                   |       |
| 2009       |       | 2,421,226                   |       |
| 2010       |       | 528,155                     |       |
|       |       | $                           | 17,128,127 |   |

 

**6.****                                     ****Notes Payable to Bank andLong-Term Debt**

 

Asummary of long-term debt at December 31, 2004 and December 31, 2005,is as follows:

 
| ** **                                    | ** ** | **December 31,** | ** **  |
|-----------------------------------------------|------------|-----------------------|-------------|
| ** **                                    | ** ** | **2004**              | ** **  | **2005** | ** ** |
| 10-7/8%  Senior secured notes; due 2011       |       | $                     | 125,000,000 |   | $ | 125,000,000 |   |
|                                          |       |                  |        |   |   |
| 13-7/8%  Senior PIK notes; due 2011           |       |                  |        | $ | 29,335,507 |   |
|                                          |       | 125,000,000           |        | 154,335,507 |   |
| Less:  Current maturities                     |       | —                |        | — |   |
| Long-term  debt, excluding current maturities |       | $                     | 125,000,000 |   | $ | 154,335,507 |   |

 

Inconnection with the financing of the acquisition described in Note 2, the OperatingCompany issued $125.0 million 10-7/8% Senior Secured Notes due 2011 andalso secured additional financing through a Revolving Loan Agreement whichprovides the Operating Company $15.0 million of revolving loan financingthrough June 30, 2009, with an additional revolving credit facility of$10.0 million becoming available upon certain events. Amounts outstandingunder the Revolving Loan Agreements are due June 30, 2009, and amountsoutstanding are subject to limitations as determined by a calculated borrowingbase. Interest on amounts outstanding under the Revolving Loan Agreement willvary at a fluctuating rate per annum that is equal to the prime rate (5.25% and7.25% at December 31, 2004 and December 31, 2005, respectively) aspublished daily by The Wall Street Journal. Amounts outstanding underthe Revolving Loan Agreement are collateralized by substantially all of theoperating assets of the Operating Company. The lien on such collateral issenior to the lien on the collateral that secures the senior secured notes. Inconnection with completing the acquisition, the Operating Company borrowed $3.0million against the revolving loan facility to fund the acquisition and initialworking capital of the Operating Company. This amount was subsequently repaid. Therewere no amounts outstanding under the revolving loan agreement at December 31,2005 and 2004.

 

Thesenior secured notes are collateralized by substantially all assets and otherproperty of the Operating Company. The lien on such collateral, however, issubordinate to the lien on the collateral securing the Revolving Loan Agreement.In addition, the terms and conditions of the Senior Secured Notes limit theOperating Company from paying the Company dividends or other payments. Intereston the senior secured notes is payable semi-annually. Interest expense on thesenior secured notes and revolving loan facility, exclusive of bond costamortization, for the year ended December 31, 2005 amounted to $13,640,177and $79,261, respectively.

 

Amountsdue under the senior secured notes and the revolving loan facility are subjectto an intercreditor agreement. The Operating Company is required to meetcertain financial covenants related primarily to

 

F-13

----

 

minimumworking capital amounts and minimum working capital ratios as well as minimumprofitability and minimum net worth calculations. At December 31, 2005 wewere not in violation of any of the covenants covering our revolving loanagreement or our senior secured notes.

 

OnFebruary 11, 2005 the Company, and its wholly-owned finance subsidiary,TWC Holding Corp., co-issued their 13.875% Senior PIK Notes due 2011, or the “SeniorPIK Notes,” in the approximate aggregate principal amount of $62,259,000 with adiscount of approximately $36,259,000. The Senior PIK Notes earn interest atthe rate of 13.875% per annum, mature on August 15, 2011 and are unsecuredobligations of TWC Holding LLC and TWC Holding Corp. Neither the Operating Companynor any of its subsidiaries guaranteed the Senior PIK notes. The notes limitthe Company’s ability to incur additional indebtedness and pay dividends ormake other distributions as well as to make certain investments and sellcertain assets or merge with or into other companies. Because our ParentCompany is a holding company with no operations and has only itsinvestment in the Operating Company, and because TWC Holding Corp. has noindependent operations or assets, future cash flows or assets of the OperatingCompany through 2011 may be required to service the $62.3 million SeniorPIK notes upon their maturity.

 

**7.****                                     ****Income Taxes**

 

Inconnection with the transaction as discussed in Note 2, the Successor’swholly owned subsidiary, Wornick, is taxed as a C-Corporation whereas thePredecessor was a pass-through entity qualified under Subchapter S of theInternal Revenue Code.

 

F-14

----

 

Income tax expense (benefit) consist of thefollowing:

 
| ** **                                   | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| **Predecessor**                              |       |        |       |         |       |      |       |
| **Year  Ended December 31, 2003**       |       |        |       |         |       |      |       |
| State                                        |       | $           | —     |         | $          | 181,500   |       | $ | 181,500 |   |
| Local                                        |       | 257,598     |       | —       |       | 257,598   |       |
|                                         |       | $           | 257,598    |         | $          | 181,500   |       | $ | 439,098 |   |
|                                         |       |        |       |         |       |      |       |
| **Six  Months Ended June 30, 2004**     |       |        |       |         |       |      |       |
| Local                                        |       | $           | 41,052     |         | $          | —    |       | $ | 41,052 |   |
|                                         |       | $           | 41,052     |         | $          | —    |       | $ | 41,052 |   |
|                                         |       |        |       |         |       |      |       |
| **Successor**                                |       |        |       |         |       |      |       |
|                                         |       |        |       |         |       |      |       |
| **Six  Months Ended December 31, 2004** |       |        |       |         |       |      |       |
| Federal                                      |       | $           | —     |         | $          | 912,067   |       | $ | 912,067 |   |
| State and local                              |       | 51,950      |       | —       |       | 51,950    |       |
|                                         |       | $           | 51,950     |         | $          | 912,067   |       | $ | 964,017 |   |
|                                         |       |        |       |         |       |      |       |
| **Year  Ended December 31, 2005**       |       |        |       |         |       |      |       |
| Federal                                      |       | $           | 961,368    |         | $          | 1,707,525 |       | $ | 2,668,893 |   |
| State and  local                             |       | (36,081     | )          | —       |       | (36,081   | )          |
|                                         |       | $           | 925,287    |         | $          | 1,707,525 |       | $ | 2,632,812 |   |

 

Prior to January 2003, the Predecessor wassubject to Texas franchise tax. Subsequent to December 31, 2002, neitherthe Predecessor nor the Operating Company are subject to Texas franchise tax. Assuch all remaining deferred Texas franchise taxes totaling $181,500 werereversed during 2003. The current tax expense of $51,950 and ($51,950) at December 31,2004 and 2005, respectively, relate primarily to local municipal taxes thatwere subsequently reversed during 2005 for municipal income taxes at ourCincinnati facility.

 

In connection with the transaction discussed inNote 2, the Operating Company is taxed as a C-Corporation whereas thePredecessor was a pass-through entity which qualified under Subchapter Sof the Internal Revenue Code.

 

The income tax provision for the period ended December 31,2005 is different from that which would be obtained by applying the statutoryfederal income tax rate to income before income taxes. The items causing thisdifference for the period from January 1, 2005 through December 31,2005, are as follows:

 

F-15

----

 

 
| ** **                                  | ** ** | **Successor**         | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                  | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Tax expense  at U.S. statutory rate         |       | $                     | 329,383    |   | $ | 3,237,291 |   |
| Local income  taxes, net of federal benefit |       | 33,768                |       | (23,453 | ) |
| Nondeductible  expenses and other           |       | 4,352                 |       | 15,488 |   |
| Valuation  allowance on deferred tax assets |       | 596,514               |       | (596,514 | ) |
|                                        |       | $                     | 964,017    |   | $ | 2,632,812 |   |

 

Thetax effects of temporary differences that give rise to significant portions ofthe deferred income tax assets and deferred income tax liabilities at December 31,2004 and 2005, are as follows:

 
| ** **                                   | ** ** | **Successor**         | ** ** |
|----------------------------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                   | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Deferred  income tax assets                  |       |                  |       |   |   |
| Inventories                                  |       | 648,685               |       | 840,753 |   |
| Identifiable  intangibles                    |       | 546,614               |       | 1,618,705 |   |
| Nondeductible  expenses                      |       | 198,757               |       | 562,282 |   |
| Operating  loss carryforwards                |       | 907,073               |       | — |   |
| Valuation  allowance on deferred tax asset   |       | (596,514              | )          | — |   |
|                                         |       |                  |       |   |   |
| Net deferred  income tax assets              |       | 1,704,615             |       | 3,021,740 |   |
|                                         |       |                  |       |   |   |
| Deferred  income tax liabilities             |       |                  |       |   |   |
| Goodwill                                     |       | 912,067               |       | 2,715,062 |   |
| Property,  plant and equipment               |       | 1,704,615             |       | 2,926,270 |   |
| Total gross  deferred income tax liabilities |       | 2,616,682             |       | 5,641,332 |   |
|                                         |       |                  |       |   |   |
| Net deferred  income tax liabilities         |       | $                     | 912,067    |   | $ | 2,619,592 |   |
|                                              |            |                       |            |  |  |  |  |

 

AtDecember 31, 2004 a valuation allowance was provided for against thedeferred tax assets as management believed that it was more likely than notthat these tax benefits would not have been realized based upon the existinguncertainty at that time regarding whether the Operating Company would generatefuture taxable income due to the additional charges related to amortization ofintangibles, bond issuance cost and goodwill. At December 31, 2005, thevaluation allowance was subsequently reversed.

 

Theaccompanying Consolidated Statements of Operations of the Predecessor alsopresents pro forma net income data which assumes the Predecessor was taxed as aC-Corporation for the periods presented utilizing a federal income tax rate of35%. The difference between the pro forma effective income tax rate and thefederal statutory rate relates primarily to permanent differences between bookand tax reporting on the Employee Stock Option Plan (“ESOP”) and certain otherlocal taxes.

 

**8.****                                     ****Commitments andContingencies**

 

Eachof the Operating Company’s divisions leases facilities from the Predecessor’sformer president and chief executive officer and former sole shareholder. Theseleases are each for a 15-year period expiring in 2010 and require the OperatingCompany to pay all maintenance, taxes, and insurance. Monthly rentals aresubject to increases based on the consumer price index (“CPI”) for the previoustwo years, but are never subject to decreases. Each of these leases has beenclassified as operating leases.

 

ThePredecessor paid approximately $1,310,000 and $592,000 in total rent expensefor the years ended December 31, 2003 and for the six-month period ended June 30,2004, respectively. The Operating

 

F-16

----

 

Companypaid approximately $592,000 for the six-month period ended December 31,2004 and $1,181,000 for the year ended December 31, 2005.

 

TheOperating Company is also obligated under operating leases for certainmanufacturing and office facilities and equipment. Rental expense for theseleases for the years ended December 31, 2003 and for the six-month periodended June 30, 2004, for the Predecessor were approximately $1,799,000 and$1,203,000, respectively. The Operating Company paid approximately $1,164,000in rental expense for these same locations for the six-month period ended December 31,2004 and $2,228,000 for the year ended December 31, 2005.

 

Futureminimum lease payments under noncancellable operating leases with remaininglease terms in excess of one year as of December 31, 2005, are as follows:

 
| **Years Ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2006                                         |       | $          | 2,900,502  |   |
| 2007                                         |       | 2,900,502  |       |
| 2008                                         |       | 2,802,522  |       |
| 2009                                         |       | 2,201,342  |       |
| 2010                                         |       | 1,310,684  |       |
| Thereafter                                   |       | 46,288     |       |
|                                         |       | $          | 12,161,840 |   |

 

**9.****                                     ****Defined ContributionEmployee Benefit Plans**

 

Inconnection with the acquisition described in Note 2, the Operating Companyadopted The Wornick Company 401(k) Savings Plan (the “401(k) Plan”), a plansimilar in all material respects to the plan available under the Predecessor,which covers all eligible employees who have met the service requirement. EffectiveJanuary 1, 2003, the Predecessor modified its 401(k) Plan which allowedplan participants to elect to defer up to 50% of their compensation for theyear, but not to exceed allowable limits prescribed under IRS regulations. The OperatingCompany will make a matching contribution at 100% for the first 3% and 50% forthe subsequent 2% of the participant’s elective compensation deferral. Prior tothe modification, a plan participant may have elected to defer up to 15%of compensation for the plan year. The Operating Company would make a matchingcontribution of 50% of the first 6% of an employee’s compensation deferral. ThePredecessor contributed approximately $413,000 and $222,000 to the 401(k) Planfor the years ended December 31, 2003 and for the six-month period ended June 30,2004, respectively. The Successor contributed approximately $202,000 to the401(k) Plan for the six-month period ended December 31, 2004, and $538,000for the year ended December 31, 2005, respectively.

 

TheOperating Company maintains various defined contribution welfare benefit plansto provide medical, dental and life insurance benefits covering active eligiblefull time employees. The life insurance and dental plans are fully insuredplans whereby the Operating Company pays annual premiums. The medical plan issubject to self-insured maximum contributions for which the Operating Companymaintains adequate reserves.

 

**10.****                              ****Predecessor StockCompensation Plans**

 

ThePredecessor Company had option plans for its executives, key personnel andBoard of Directors for which 548,676 fully vested options were outstanding withexercise prices ranging from $3.58 to $5.89. The terms of each of the optionawards provided the individual with the right to immediately sell back to the PredecessorCompany, at fair value, any stock obtained through the exercise of any optionaward. Under accounting principles generally accepted in the United States ofAmerica, all of the options above were therefore accounted for as compensatoryplans with compensation expense being recorded based upon the fair value of theunderlying stock through the date the award was exercised or otherwise settled.Total

 

F-17

----

 

compensationexpense related to all of the above options was $5,364,485 for the year ended December 31,2003, and $713,433 for the six-month period ended June 30, 2004.

 

Asummary of transactions for all options follows:

 
| ** **                             | ** ** | **Number**         | ** ** | **Exercise** | ** **  |
|----------------------------------------|------------|--------------------|------------|--------------|-------------|
| ** **                             | ** ** | **of Shares** | ** ** | **Price**    | ** **  |
| Outstanding  at December 31, 2002 |       | 548,676            |       | $            | 3.58 - 5.89 |   |
|                                   |       |               |       |         |        |
| Granted                                |       | —             |       | —       |        |
| Exercised                              |       | —             |       | —       |        |
| Cancelled                              |       | —             |       | —       |        |
|                                   |       |               |       |         |        |
| Outstanding  at December 31, 2003 |       | 548,676            |       | $            | 3.58 - 5.89 |   |
|                                   |       |               |       |         |        |
| Granted                                |       | —             |       | —       |        |
| Exercised                              |       | —             |       | —       |        |
| Cancelled                              |       | —             |       | —       |        |
|                                   |       |               |       |         |        |
| Outstanding  at June 30, 2004     |       | 548,676            |       | $            | 3.58 - 5.89 |   |

 

**Other Predecessor Stock-based Compensation Plans**

 

ThePredecessor Company also adopted an incentive cash compensation plan effective December 20,2002. Under the terms of the plan, certain employees would receive a base cashcompensation totaling $475,000 adjusted in proportion to the changes in thefair value of the shares of the Predecessor Company’s common stock from $7.05per share. In June 2003 the Predecessor Company granted certain Directorsa total of 60,000 stock units which effectively provide the individual theright to receive a cash payment for the increase in the fair value of the PredecessorCompany’s common stock in excess of $17.44. In addition, in July 2001 the PredecessorCompany had adopted an incentive cash compensation plan to one employee which wascontingent upon a change in control of the Predecessor Company. The employeereceived a base compensation of $250,000 adjusted in proportion to the changesin fair value of the shares of the Predecessor Company’s common stock from$6.47 per share. Compensation expense of $833,269 was recorded for the yearended December 31, 2003, and $3,266,814 for the six-month period ended June 30,2004, related to these plans. Payments to employees and Directors under theseplans were contingent upon the continued employment (or service in the case ofthe Directors) with the Predecessor Company.

 

**Predecessor Employee Stock Ownership Plan**

 

InNovember 1995, the Predecessor Company established an employee stockownership plan, The Wornick Company Employee Stock Ownership Plan, and a trust,The Wornick Company Employee Stock Ownership Trust (“ESOT”), to provide alleligible employees of the Predecessor Company the opportunity to obtainbeneficial interests in the stock of the Predecessor Company. The ESOPauthorized the ESOT to purchase all of the Predecessor Company’s common stockoutstanding, 5 million shares, from the sole shareholder for $34.0 million. ThePredecessor Company entered into an agreement with a bank to borrow$34.0 million in connection with the ESOT that was loaned on the sameterms to the ESOT.

 

Theloan obligation of the ESOT was considered unearned employee benefit expenseand, as such, was recorded as a reduction of the Predecessor Company’s stockholder’sequity. The Predecessor Company contributions were to the ESOT in such amountsas determined by the Predecessor Company’s Board of Directors. The Predecessor Companycontributed sufficient amounts to the ESOT that, together with dividends onunallocated shares held by the ESOT and other earnings on ESOT nonstock assetsenabled the ESOT to service principal and interest payments on the note payableto the Predecessor Company.

 

Compensationcost was recognized as shares were committed to be released based on theiraverage fair values. The Predecessor Company recorded compensation coststotaling $7,493,455 for the year ended December 31, 2003, and $2,344,292for the six-month period ended June 30, 2004. The excess of the currentestimated fair value of the shares released over their cost totaled $5,666,366for the year ended

 

F-18

----

 

December 31,2003, and $1,823,044 for the six-month period ended June 30, 2004 (basedupon the shares expected to be released in 2004), and was recorded as anincrease to additional paid-in capital.

 

Aslong as the loan to the ESOT was outstanding, shares of common stock were to bereleased and allocated to eligible employees when loan payments are received. Thenumber of shares allocated to participants was a formula based on payroll. Thenumber of shares allocated and unallocated at December 31, 2003, and forthe six-month period ended June 30, 2004 (based upon shares expected to beallocated), was as follows:

 
| ** **  | ** ** | ** **            | ** ** | **Six-Month**         | ** ** |
|-------------|------------|-----------------------|------------|-----------------------|------------|
| ** **  | ** ** | ** **            | ** ** | **Period Ended** | ** ** |
| ** **  | ** ** | **December 31,** | ** ** | **June 30,**     | ** ** |
| ** **  | ** ** | **2003**              | ** ** | **2004**              | ** ** |
|        |       |                  |       |                  |       |
| Allocated   |       | 3,505,357             |       | 3,581,993             |       |
| Unallocated |       | 1,494,643             |       | 1,418,007             |       |
|        |       | 5,000,000             |       | 5,000,000             |       |

 

**11.****                              ****Members Equity**

 

TWCHolding LLC has two classes of membership interests, Class A interests andClass B interests. In connection with completing the Acquisition, certainmembers of our Operating Company’s management and outside directors received Class Binterests, which vest over five years. Pursuant to the terms of the operatingagreement governing TWC Holding LLC, the holders of Class B interests areentitled to receive up to 7.875%, in aggregate, of all distributions made byTWC Holding LLC after the holders of Class A interests have received areturn of their invested capital provided that the holders of the Class Ainterests have received an 8% per annum internal rate of return on theirinvested capital. The Class B interests are subject to a five-year vestingschedule with any unvested interest reverting to the holders of Class Ainterests. Because these Class B interests were issued to members ofmanagement and directors of the Company, these awards are considered to becompensatory to the Operating Company over the vesting period. The total fairvalue of the original Class B interests as of their issuance date wasdetermined to be $1,464,000. During the period ended April 2, 2005,certain members of management terminated their employment with Wornick andforfeited their Class B interests. In addition subsequent to October 1,2005 certain members of management relinquished their Class B interests. Assuch, previously recognized compensation expense of approximately $78,000 wasreversed in the thirteen week period ended April 2, 2005 related to thevesting provisions of these Class B interests. As it relates to members ofmanagement that relinquished their Class B interests in November 2005,previously recognized compensation expense of approximately $34,000 wasreversed during the thirteen week period ended October 1, 2005.

 

OnApril 11, 2005 and November 11, 2005, TWC Holding LLC issuedadditional Class B membership interests to recently retained seniormanagement of the Wornick. These Class B membership interests will vestover a five year period. Net compensation expense for all Class Bmembership interests for the year ended December 31, 2005 wasapproximately $86,000.

 

**12.****                              ****Transactions with MajorCustomer and Related Party**

 

MajorCustomer:

TheCompany’s sales are predominantly derived from the U.S. Government. During theyear ended December 31, 2003 and the six-month period ended June 30,2004, Predecessor sales to the U.S. Government accounted for approximately$284,699,000 and $66,799,000 or 89% and 83% of net revenue respectively. Successorsales to the U.S. Government for the six-month period ended December 31,2004 and for the year ended December 31, 2005, accounted for approximately$82,955,000 and $209,936,000 or 83% and 81% of net revenue respectively. Approximately$10,132,000 or 73% and $14,025,000 or 73% of net accounts receivable wasattributable to this major customer as of December 31, 2004 and 2005,

 

F-19

----

 

respectively.The loss of all or a substantial portion of our sales to the U.S. Governmentwould have a material adverse effect on our financial position, results ofoperations and cash flows.

 

RelatedParty:

TheOperating Company has an agreement with Veritas. Veritas, through TWC HoldingLLC owns essentially all of the Operating Company’s common stock. Under theterms of the agreement Veritas provides management and advisory services to theOperating Company for an annual management fee of $300,000. Fees charged underthe agreement for the six month period ended December 31, 2004 and yearended December 31, 2005 were $150,000 and $300,000, respectively.

 

**13.****                              ****Commitment and Contingencies**

 

TheCompany is involved in various claims and legal actions arising in the ordinarycourse of business. In the opinion of management, the ultimate disposition ofthese matters will not have a material adverse effect on the Company’sfinancial position, results of operations or liquidity.

 

**14.****                              ****Operating SegmentInformation**

 

TheOperating Company has two operating segments Right Away Division (“RAD”) andPrepared Foods Division (“PFD”). RAD is located in Texas and primarily sellsits product to the U.S. Department of Defense. PFD is located in Ohio and alsosells directly to the U.S. Department of Defense as well as to commercialbranded food companies and inter-segment sales to RAD. Management evaluatessegment performance based on several factors, including operating profit.

 

Theaccounting policies of the operating segments are generally the same as thosedescribed in Note 3. Inter-segment transactions have been eliminated.

 

Consistentwith the Company’s (and the Predecessor’s) internal management reporting,corporate operations for the Predecessor include investment and interestincome, compensation expense for the ESOT, stock and other stock-basedcompensation plans and overhead costs. Corporate assets primarily includeinvestments in subsidiary guarantors (which are eliminated in consolidation),other investments and goodwill. Other significant noncash items includecompensation expense for ESOT shares released and committed to be released as wellas compensation expense related to stock options and other stock-basedcompensation plans.

 

F-20

----

 

TheCompany’s sales by product line for the periods indicated are as follows:

 
| ** **                                   | ** ** | **Predecessor**                 | ** ** | **Successor**                 | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                   | ** ** | ** **                      | ** ** | **Period from**          | ** ** | **Period from** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | ** **                      | ** ** | **January 1, 2004** | ** ** | **July 1, 2004** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **Year Ended**             | ** ** | **to**                        | ** ** | **to** | ** ** | **Year Ended** | ** ** |
| **(in thousands of dollars)** | ** ** | **December 31, 2003** | ** ** | **June 30, 2004**   | ** ** | **December 31, 2004** | ** ** | **December 31, 2005** | ** ** |
|                                         |       |                            |       |                          |       |   |   |   |   |
| DOD Sales                                    |       |                            |       |                          |       |   |   |   |   |
| Meals Ready-to-Eat                           |       | $                               | 135,327    |                          | $          | 39,078 |   | $ | 59,076 |   | $ | 142,461 |   |
| Unitized  Group Rations                      |       | 126,996                         |       | 24,518                        |       | 18,397 |   | 56,079 |   |
| Tray-Pack                                    |       | 19,469                          |       | 2,410                         |       | 4,302 |   | 6,278 |   |
| Military  Other                              |       | 2,907                           |       | 793                           |       | 1,180 |   | 5,118 |   |
| Total DOD  sales                             |       | 284,699                         |       | 66,799                        |       | 82,955 |   | 209,936 |   |
| Co-manufactured                              |       | 25,621                          |       | 10,329                        |       | 11,990 |   | 40,372 |   |
| Branded                                      |       | 2,203                           |       | 2,359                         |       | 2,271 |   | 4,627 |   |
| Other                                        |       | 5,847                           |       | 1,437                         |       | 3,165 |   | 2,943 |   |
|                                         |       | $                               | 318,370    |                          | $          | 80,924 |   | $ | 100,381 |   | $ | 257,878 |   |

 

Reportable operating segment financial information for the years ended December 31,2003 and for the six-month periods ended June 30, 2004 and December 31,2004 and for the year ended December 31, 2005 is as follows:

 

F-21

----

 

 
| **Operating Segments**                         | ** ** | **Trade  Revenue** | ** ** | **Inter-segment  Revenue** | ** ** | **Operating  Profit  (Loss)** | ** ** | **Depreciation/  Amortization** | ** ** | **Other  Significant  Noncash  Charges** | ** ** | **Total  Assets** | ** ** | **Capital  Expenditures** | ** ** |
|------------------------------------------------|------------|--------------------|------------|----------------------------|------------|-------------------------------|------------|---------------------------------|------------|------------------------------------------|------------|-------------------|------------|---------------------------|------------|
| **Right  Away Division**                       |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                           |       | 268,457,723        |       | —                     |       | 25,648,073                    |       | 741,323                         |       | —                                   |       | 33,752,073        |       | 2,597,137                 |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended June 30, 2004     |       | 65,266,652         |       | —                     |       | 4,274,494                     |       | 486,473                         |       | —                                   |       | —            |       | 773,591                   |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended December 31, 2004 |       | 79,631,256         |       | —                     |       | 3,936,779                     |       | 1,594,430                       |       | —                                   |       | 36,053,360        |       | 643,810                   |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2005                                           |       | 203,924,739        |       |                       |       | 35,548,583                    |       | 2,154,690                       |       | —                                   |       | 52,432,775        |       | 446,117                   |       |
| **Prepared  Foods**                            |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                           |       | 49,912,436         |       | 68,868,033                 |       | 14,727,466                    |       | 1,537,156                       |       | —                                   |       | 33,119,145        |       | 9,922,912                 |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended June 30, 2004     |       | 15,657,187         |       | 19,815,600                 |       | 4,413,202                     |       | 891,518                         |       | —                                   |       | —            |       | 1,609,129                 |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended December 31, 2004 |       | 20,749,508         |       | 30,905,753                 |       | 5,812,388                     |       | 4,275,758                       |       | —                                   |       | 66,601,215        |       | 3,657,288                 |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2005                                           |       | 53,953,666         |       | 49,684,667                 |       | 1,059,477                     |       | 6,465,951                       |       | —                                   |       | 76,876,168        |       | 13,166,081                |       |
| **Corporate**                                  |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                           |       | —             |       | —                     |       | (14,526,556                   | )          | 21,265                          |       | 13,691,209                               |       | 71,719,385        |       | 5,945                     |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended June 30, 2004     |       | —             |       | —                     |       | (7,975,339                    | )          | 8,913                           |       | 6,324,539                                |       | —            |       | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended December 31, 2004 |       | —             |       | —                     |       | (1,748,525                    | )          | 294,942                         |       | —                                   |       | 111,269,730       |       | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2005                                           |       | —             |       |                       |       | (12,965,268                   | )          | 682,800                         |       | —                                   |       | 118,161,150       |       |                      |       |
| **Eliminations**                               |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                           |       | —             |       | (68,868,033                | )          | 65,670                        |       | —                          |       | —                                   |       | (51,881,906       | )          | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended June 30, 2004     |       | —             |       | (19,815,600                | )          | —                        |       | —                          |       | —                                   |       | —            |       |                      |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended December 31, 2004 |       | —             |       | (30,905,753                | )          | —                        |       | —                          |       | —                                   |       | (33,402,222       | )          | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2005                                           |       | —             |       | (49,684,667                | )          | —                        |       | —                          |       | —                                   |       | (82,625,265       | )          |                      |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| **TWC  Holding LLC**                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                           |       | —             |       | —                     |       | —                        |       | —                          |       | —                                   |       | —            |       | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended June 30, 2004     |       | —             |       | —                     |       | —                        |       | —                          |       | —                                   |       | —            |       | —                    |       |
| Six-month  period ended December 31, 2004 |       | —             |       | —                     |       | —                        |       | —                          |       | —                                   |       | —            |       | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2005                                           |       | —             |       | —                     |       | (121,833                      | )          | 335,671                         |       | —                                   |       | 46,504,553        |       | —                    |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| **Total  Company**                             |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                           |       | 318,370,159        |       | —                     |       | 25,914,653                    |       | 2,299,744                       |       | 13,691,209                               |       | 86,708,697        |       | 12,525,994                |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended June 30, 2004     |       | 80,923,839         |       | —                     |       | 712,357                       |       | 1,386,904                       |       | 6,324,539                                |       | —            |       | 2,382,720                 |       |
|                                           |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| Six-month  period ended December 31, 2004 |       | 100,380,764        |       | —                     |       | 8,000,642                     |       | 6,165,130                       |       | —                                   |       | 180,522,083       |       | 4,301,098                 |       |
| 2005                                           |       | 257,878,405        |       | —                     |       | 23,520,959                    |       | 9,639,112                       |       | —                                   |       | 211,349,381       |       | 13,612,198                |       |

 

F-22

----

 

**15.****                              ****Condensed ConsolidatedFinancial Information**

 

Inconnection with financing of the Assets Purchase transaction described inNote 2, the Operating Company issued $125.0 million of Senior Notes due2011. The notes are general obligations of the Company and are jointly andseverally, irrevocably and unconditionally, guaranteed on a senior securedbasis by each of the Successor entity’s present and future Subsidiaries (the “SubsidiaryGuarantors”). In addition, the terms and conditions of the Senior Subordinatedterm notes limit the Operating Company’s ability to pay dividends or otherpayments tot eh Company. In this regard, the net assets of the OperatingCompany are restricted assets of the Company, as such condensed financialinformation for TWC Holding LLC is also presented for the applicable periodssubsequent to the acquisition.

 

Thefollowing information presents the consolidated balance sheet of the SuccessorSubsidiary Guarantors at December 31, 2004 and December 31, 2005, thestatement of operations of the Predecessor for the year ended December 31,2003 and the six-month period ended June 30, 2004 and of the Successor forthe six-month period ended December 31, 2004 and the year ended December 31,2005, and the statement of cash flows of the Predecessor for the year ended December 31,2003 and the six-month period ended June 30, 2004 and of the Successor’sSubsidiary Guarantors for the six-month period ended December 31, 2004 andfor the year ended December 31, 2005:

 

F-23

----

 

Condensedconsolidated balance sheet at December 31, 2004:

 
| ** **                                     | ** ** | **Successor**        | ** ** |
|------------------------------------------------|------------|----------------------|------------|
| ** **                                     | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Assets**                                     |       |                 |       |   |   |   |   |   |   |   |   |
| Current  assets                                |       |                 |       |   |   |   |   |   |   |   |   |
| Cash and  cash equivalents                     |       | $                    | —     |   | $ | 1,085,474 |   | $ | 2,203,556 |   | $ | — |   | $ | 3,289,030 |   |
| Trade  accounts receivable                     |       | —               |       | 4,413,429 |   | 9,442,865 |   | — |   | 13,856,294 |   |
| Interdivision  receivables                     |       | —               |       | 4,822,266 |   | — |   | (4,822,266 | ) | — |   |
| Inventories                                    |       | —               |       | 10,491,680 |   | 13,640,436 |   | — |   | 24,132,116 |   |
| Prepaid  expenses and other current assets     |       | —               |       | 246,316 |   | 284,790 |   | — |   | 531,106 |   |
| Deferred  taxes                                |       | —               |       | 847,442 |   | — |   | — |   | 847,442 |   |
| Total  current assets                          |       | —               |       | 21,906,607 |   | 25,571,647 |   | (4,822,266 | ) | 42,655,988 |   |
|                                           |       |                 |       |   |   |   |   |   |   |   |   |
| Investments  in subsidiary guarantors          |       | 37,623,477           |       | 28,579,956 |   | — |   | (66,203,433 | ) | — |   |
| Property and  equipment, net                   |       | —               |       | 25,845,617 |   | 6,948,622 |   | — |   | 32,794,239 |   |
| Goodwill                                       |       | —               |       | 77,573,207 |   | — |   | — |   | 77,573,207 |   |
| Intangible  assets, net                        |       | —               |       | 18,434,375 |   | 3,388,335 |   | 21,822,710 |   |   |   |
| Other  noncurrent assets                       |       | —               |       | 5,531,183 |   | 144,756 |   | — |   | 5,675,939 |   |
| Total assets                                   |       | $                    | 37,623,477 |   | $ | 177,870,945 |   | $ | 36,053,360 |   | $ | (71,025,699 | ) | $ | 180,522,083 |   |
| **Liabilities  and Stockholder’s Equity** |       |                 |       |   |   |   |   |   |   |   |   |
| Current  liabilities                           |       |                 |       |   |   |   |   |   |   |   |   |
| Trade  accounts payable                        |       | $                    | —     |   | $ | 4,556,681 |   | $ | 1,611,145 |   | $ | — |   | $ | 6,167,826 |   |
| Interdivision  payables                        |       | —               |       | 101,605 |   | 4,720,661 |   | (4,822,266 | ) | — |   |
| Accrued  expenses                              |       | —               |       | 1,980,848 |   | 1,141,598 |   | — |   | 3,122,446 |   |
| Accrued  interest                              |       | —               |       | 6,796,875 |   | — |   | — |   | 6,796,875 |   |
| Taxes  payable                                 |       | —               |       | 51,950 |   | — |   | — |   | 51,950 |   |
| Total  current liabilities                     |       | —               |       | 13,487,959 |   | 7,473,404 |   | (4,822,266 | ) | 16,139,097 |   |
|                                           |       |                 |       |   |   |   |   |   |   |   |   |
| Deferred tax  liabilities                      |       | $                    | —     |   | $ | 1,759,509 |   | — |   | — |   | $ | 1,759,509 |   |
| Long-term  debt, excluding current maturities  |       | —               |       | 125,000,000 |   | — |   | — |   | 125,000,000 |   |
| Total  liabilities                             |       | —               |       | 140,247,468 |   | 7,473,404 |   | (4,822,266 | ) | 142,898,606 |   |
| Stockholder’s  equity                     |       |                 |       |   |   |   |   |   |   |   |   |
| Members  Equity                                |       | 37,500,000           |       | — |   | — |   | — |   | 37,500,000 |   |
| Additional  paid-in capital                    |       | 146,400              |       | 37,646,400 |   | 26,624,729 |   | (64,271,129 | ) | 146,400 |   |
| Retained  earnings/(deficit)                   |       | (22,923              | )          | (22,923 | ) | 1,955,227 |   | (1,932,304 | ) | (22,923 | ) |
| Total member’s  equity/(deficit)          |       | 37,623,477           |       | 37,623,477 |   | 28,579,956 |   | (66,203,433 | ) | 37,623,477 |   |
| Total  liabilities and member’s           |       |                 |       |   |   |   |   |   |   |   |   |
| equity                                         |       | $                    | 37,623,477 |   | $ | 177,870,945 |   | $ | 36,053,360 |   | $ | (71,025,699 | ) | $ | 180,522,083 |   |

 

F-24

----

 

Condensedconsolidated balance sheet at December 31, 2005:

 
| ** **                                     | ** ** | **Successor**        | ** ** |
|------------------------------------------------|------------|----------------------|------------|
| ** **                                     | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Assets**                                     |       |                 |       |   |   |   |   |   |   |   |   |
| Current  assets                                |       |                 |       |   |   |   |   |   |   |   |   |
| Cash and  cash equivalents                     |       | $                    | 3,973      |   | $ | 509,176 |   | $ | 16,821,585 |   | $ | — |   | $ | 17,334,734 |   |
| Trade  accounts receivable                     |       | —               |       | 4,891,849 |   | 14,294,964 |   | — |   | 19,186,813 |   |
| Interdivision  receivables                     |       | —               |       | 3,784,303 |   | (3,784,303 | ) | — |   | — |   |
| Inventories                                    |       | —               |       | 12,043,759 |   | 15,910,537 |   | — |   | 27,954,296 |   |
| Prepaid  expenses and other current assets     |       | 4,270                |       | 234,304 |   | 391,671 |   | — |   | 630,245 |   |
| Deferred  income taxes                         |       | —               |       | 1,403,035 |   | — |   | — |   | 1,403,035 |   |
| Total  current assets                          |       | 8,242                |       | 22,866,426 |   | 43,634,454 |   | — |   | 66,509,122 |   |
|                                           |       |                 |       |   |   |   |   |   |   |   |   |
| Investments  in subsidiary guarantors          |       | 44,326,348           |       | 38,298,917 |   | — |   | (82,625,265 | ) | — |   |
| Property and  equipment, net                   |       | —               |       | 36,850,845 |   | 6,063,382 |   | — |   | 42,914,227 |   |
| Goodwill                                       |       | —               |       | 77,573,207 |   | — |   | — |   | 77,573,207 |   |
| Intangible  assets, net                        |       | —               |       | 14,563,125 |   | 2,565,002 |   | — |   | 17,128,127 |   |
| Other  noncurrent assets                       |       | 2,169,963            |       | 4,884,798 |   | 169,937 |   | — |   | 7,224,698 |   |
| Total assets                                   |       | $                    | 46,504,553 |   | $ | 195,037,318 |   | $ | 52,432,775 |   | $ | (82,625,265 | ) | $ | 211,349,381 |   |
| **Liabilities  and Stockholder’s Equity** |       |                 |       |   |   |   |   |   |   |   |   |
| Current  liabilities                           |       |                 |       |   |   |   |   |   |   |   |   |
| Trade  accounts payable                        |       | $                    | 97,600     |   | $ | 9,743,912 |   | $ | 10,058,538 |   | $ | — |   | $ | 19,900,050 |   |
| Accrued  expenses                              |       | —               |       | 4,256,450 |   | 4,075,320 |   | — |   | 8,331,770 |   |
| Accrued interest                               |       | —               |       | 6,276,896 |   | — |   | — |   | 6,276,896 |   |
| Taxes  payable                                 |       | —               |       | 977,237 |   | — |   | — |   | 977,237 |   |
| Total  current liabilities                     |       | 97,600               |       | 21,254,495 |   | 14,133,858 |   | — |   | 35,485,953 |   |
|                                           |       |                 |       |   |   |   |   |   |   |   |   |
| Deferred  income taxes and other liabilities   |       | $                    | —     |   | $ | 4,456,475 |   | — |   | — |   | $ | 4,456,475 |   |
| Long-term  debt, excluding current maturities  |       | 29,335,507           |       | 125,000,000 |   | — |   | — |   | 154,335,507 |   |
| Total  liabilities                             |       | 29,433,107           |       | 150,710,970 |   | 14,133,858 |   | — |   | 194,277,935 |   |
| Member’s  equity                          |       |                 |       |   |   |   |   |   |   |   |   |
| Members  Equity                                |       | 14,038,007           |       | — |   | — |   | — |   | 14,038,007 |   |
| Additional  paid-in capital                    |       | 232,680              |       | 37,732,680 |   | 26,624,729 |   | (64,357,409 | ) | 232,680 |   |
| Retained  earnings/(deficit)                   |       | 2,800,759            |       | 6,593,668 |   | 11,674,188 |   | (18,267,856 | ) | 2,800,759 |   |
| Total member’s  equity/(deficit)          |       | 17,071,446           |       | 44,326,348 |   | 38,298,917 |   | (82,625,265 | ) | 17,071,446 |   |
| Total  liabilities and member’s equity    |       | $                    | 46,504,553 |   | $ | 195,037,318 |   | $ | 52,432,775 |   | $ | (82,625,265 | ) | $ | 211,349,381 |   |

 

F-25

----

 

Condensed consolidated statement of operations forthe year ended December 31, 2003:

 
| ** **                                    | ** ** | **Predecessor** | ** **  |
|-----------------------------------------------|------------|-----------------|-------------|
| ** **                                    | ** ** | **Parent**      | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Net sales                                     |       | $               | 118,780,469 |   | $ | 268,457,723 |   | $ | (68,868,033 | ) | $ | 318,370,159 |   |
| Cost of  sales                                |       | 97,612,502      |        | 236,768,499 |   | (68,933,703 | ) | 265,447,298 |   |
| Gross profit                                  |       | 21,167,967      |        | 31,689,224 |   | 65,670 |   | 52,922,861 |   |
| Selling,  general and administrative expenses |       | 20,967,057      |        | 6,041,151 |   | — |   | 27,008,208 |   |
| Operating  profit                             |       | 200,910         |        | 25,648,073 |   | 65,670 |   | 25,914,653 |   |
| Other income  (expense)                       |       |            |        |   |   |   |   |   |   |
| Interest  income                              |       | 163,258         |        | 81,107 |   | — |   | 244,365 |   |
| Interest  expense                             |       | (464,460        | )           | (72,565 | ) | — |   | (537,025 | ) |
| Executive/administration  (income) expense    |       | (1,366,112      | )           | 1,366,112 |   | — |   | — |   |
| Other  income, net                            |       | —          |        | 979,813 |   | — |   | 979,813 |   |
| Equity in earnings  of subsidiary guarantors  |       | 28,022,060      |        | — |   | (28,022,060 | ) | — |   |
| Total other  income                           |       | 26,354,746      |        | 2,354,467 |   | (28,022,060 | ) | 687,153 |   |
| Income  before income taxes                   |       | 26,555,656      |        | 28,002,540 |   | (27,956,390 | ) | 26,601,806 |   |
| Income tax  expense (benefit)                 |       | 458,618         |        | (19,520 | ) | — |   | 439,098 |   |
| Net income                                    |       | $               | 26,097,038  |   | $ | 28,022,060 |   | $ | (27,956,390 | ) | $ | 26,162,708 |   |

 

Condensed consolidated statement of operations forthe six-month period ended June 30, 2004:

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Net sales                                     |       | $               | 35,472,787 |   | $ | 65,266,652 |   | $ | (19,815,600 | ) | $ | 80,923,839 |   |
| Cost of  sales                                |       | 28,838,375      |       | 58,730,107 |   | (19,815,600 | ) | 67,752,882 |   |
| Gross profit                                  |       | 6,634,412       |       | 6,536,545 |   | — |   | 13,170,957 |   |
| Selling,  general and administrative expenses |       | 10,196,549      |       | 2,262,051 |   | — |   | 12,458,600 |   |
| Operating  (loss) profit                      |       | (3,562,137      | )          | 4,274,494 |   | — |   | 712,357 |   |
| Other income  (expense)                       |       |            |       |   |   |   |   |   |   |
| Interest  income                              |       | 483,029         |       | 23,524 |   | — |   | 506,553 |   |
| Interest  expense                             |       | (95,403         | )          | (4,388 | ) | — |   | (99,791 | ) |
| Executive/administration  income (expense)    |       | 483,000         |       | (483,000 | ) | — |   | — |   |
| Other  income, net                            |       | 92,912          |       | 276,362 |   | — |   | 369,274 |   |
| Equity in  earnings of subsidiary guarantors  |       | 4,086,992       |       | — |   | (4,086,992 | ) | — |   |
| Total other  income (expense)                 |       | 5,050,530       |       | (187,502 | ) | (4,086,992 | ) | 776,036 |   |
| Income  before income taxes                   |       | 1,488,393       |       | 4,086,992 |   | (4,086,992 | ) | 1,488,393 |   |
| Income tax  expense                           |       | 41,052          |       | — |   | — |   | 41,052 |   |
| Net income                                    |       | $               | 1,447,341  |   | $ | 4,086,992 |   | $ | (4,086,992 | ) | $ | 1,447,341 |   |

 

F-26

----

 

Condensedconsolidated statement of operations for the six-month period ended December 31,2004:

 
| ** **                                    | ** ** | **Successor**        | ** ** |
|-----------------------------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Net sales                                     |       | $                    | —     |   | $ | 51,655,261 |   | $ | 79,631,256 |   | $ | (30,905,753 | ) | $ | 100,380,764 |   |
| Cost of  sales                                |       | —               |       | 41,254,642 |   | 72,958,916 |   | (30,905,753 | ) | 83,307,805 |   |
| Gross profit                                  |       | —               |       | 10,400,619 |   | 6,672,340 |   | — |   | 17,072,959 |   |
| Selling,  general and administrative expenses |       | —               |       | 6,336,756 |   | 2,735,561 |   | — |   | 9,072,317 |   |
| Operating  profit                             |       | —               |       | 4,063,863 |   | 3,936,779 |   | — |   | 8,000,642 |   |
| Other income  (expense)                       |       |                 |       |   |   |   |   |   |   |   |   |
| Interest  income                              |       | —               |       | 3,931 |   | 83,098 |   | — |   | 87,029 |   |
| Interest  expense                             |       | —               |       | (7,128,614 | ) | (21,867 | ) | — |   | (7,150,481 | ) |
| Executive/administration  income (expense)    |       | —               |       | 2,252,162 |   | (2,252,162 | ) | — |   | — |   |
| Other  (expense) income, net                  |       | —               |       | (205,475 | ) | 209,379 |   | — |   | 3,904 |   |
| Equity in  earnings of subsidiary guarantors  |       | (22,923              | )          | 1,955,227 |   | — |   | (1,932,304 | ) | — |   |
| Total other  income (expense)                 |       | (22,923              | )          | (3,122,769 | ) | (1,981,552 | ) | (1,932,304 | ) | (7,059,548 | ) |
| Income  before income taxes                   |       | (22,923              | )          | 941,094 |   | 1,955,227 |   | (1,932,304 | ) | 941,094 |   |
| Income tax  expense                           |       | —               |       | 964,017 |   | — |   | — |   | 964,017 |   |
| Net income                                    |       | $                    | (22,923    | ) | $ | (22,923 | ) | $ | 1,955,227 |   | $ | (1,932,304 | ) | $ | (22,923 | ) |

 

Condensedconsolidated statement of operations for the year ended December 31, 2005:

 
| ** **                                    | ** ** | ** **           | ** ** | **Successor**                      | ** ** |
|-----------------------------------------------|------------|----------------------|------------|------------------------------------|------------|
| ** **                                    | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Net sales                                     |       | $                    | —     |                               | $          | 103,638,333 |   | $ | 203,924,739 |   | $ | (49,684,667 | ) | $ | 257,878,405 |   |
| Cost of  sales                                |       | —               |       | 97,490,824                         |       | 163,090,771 |   | (49,684,667 | ) | 210,896,928 |   |
| Gross profit                                  |       | —               |       | 6,147,509                          |       | 40,833,968 |   | — |   | 46,981,477 |   |
| Selling,  general and administrative expenses |       | 121,833              |       | 18,053,300                         |       | 5,285,385 |   | — |   | 23,460,518 |   |
| Operating  profit                             |       | (121,833             | )          | (11,905,791                        | )          | 35,548,583 |   | — |   | 23,520,959 |   |
| Other income  (expense)                       |       |                 |       |                               |       |   |   |   |   |   |   |
| Interest  income                              |       | —               |       | 36,156                             |       | 173,720 |   | — |   | 209,876 |   |
| Interest  expense                             |       | (3,671,076           | )          | (14,402,144                        | )          | (94 | ) | — |   | (18,073,314 | ) |
| Executive/administration  income (expense)    |       | —               |       | 26,153,051                         |       | (26,153,051 | ) | — |   | — |   |
| Other  (expense) income, net                  |       | —               |       | (350,830                           | )          | 149,803 |   | — |   | (201,027 | ) |
| Equity in  earnings of subsidiary guarantors  |       | 6,616,591            |       | 9,718,961                          |       | — |   | (16,335,551 | ) | 1 |   |
| Total other  income (expense)                 |       | 2,945,515            |       | 21,155,194                         |       | (25,829,622 | ) | (16,335,551 | ) | (18,064,464 | ) |
| Income  before income taxes                   |       | 2,823,682            |       | 9,249,403                          |       | 9,718,961 |   | (16,335,551 | ) | 5,456,495 |   |
| Income tax  expense                           |       | —               |       | 2,632,812                          |       | — |   | — |   | 2,632,812 |   |
| Net income                                    |       | $                    | 2,823,682  |                               | $          | 6,616,591 |   | $ | 9,718,961 |   | $ | (16,335,551 | ) | $ | 2,823,683 |   |

 

F-27

----

 

Condensed consolidated statement of cash flows forthe year ended December 31, 2003:

 
| ** **                                                                        | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                        | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                         |       |            |       |   |   |   |   |   |   |
| Net income                                                                        |       | $               | 26,097,038 |   | $ | 28,022,060 |   | $ | (27,956,390 | ) | $ | 26,162,708 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |            |       |   |   |   |   |   |   |
| Depreciation  of property and equipment                                           |       | 1,558,421       |       | 741,323 |   | — |   | 2,299,744 |   |
| Equity in  earnings of subsidiary guarantors                                      |       | (28,022,060     | )          | — |   | 28,022,060 |   | — |   |
| Loss on  disposal of assets                                                       |       | —          |       | 10,648 |   | — |   | 10,648 |   |
| Deferred  income tax expense                                                      |       | 181,500         |       | — |   | — |   | 181,500 |   |
| Compensation  expense for Employee                                                |       |            |       |   |   |   |   |   |   |
| Stock  Ownership Trust shares released and committed to be released               |       | 7,493,455       |       | — |   | — |   | 7,493,455 |   |
| Compensation  expense for stock options                                           |       | 5,364,485       |       | — |   | — |   | 5,364,485 |   |
| Other  stock-based compensation plan expense                                      |       | 833,269         |       | — |   | — |   | 833,269 |   |
| Changes in  assets and liabilities                                                |       |            |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                        |       | 4,316,218       |       | (6,207,319 | ) | — |   | (1,891,101 | ) |
| Interdivisional  receivables/payables, net                                        |       | 12,088,743      |       | (12,088,743 | ) | — |   | — |   |
| Inventories                                                                       |       | 1,254,049       |       | (2,081,429 | ) | (65,670 | ) | (893,050 | ) |
| Prepaid  expenses and other current assets                                        |       | (463,684        | )          | (55,657 | ) | — |   | (519,341 | ) |
| Other  noncurrent asset                                                           |       | (222,320        | )          | (20,009 | ) | — |   | (242,329 | ) |
| Trade  accounts payable and accrued expenses                                      |       | (3,028,697      | )          | (946,432 | ) | — |   | (3,975,129 | ) |
| Taxes  payable                                                                    |       | (6,635          | )          | (266,712 | ) | — |   | (273,347 | ) |
| Net cash  provided by operating activities                                        |       | 27,443,782      |       | 7,107,730 |   | — |   | 34,551,512 |   |
|                                                                              |       |            |       |   |   |   |   |   |   |
| **Cash  flows from investing activities**                                         |       |            |       |   |   |   |   |   |   |
| Payments  received on notes receivable                                            |       | 810,705         |       | — |   | — |   | 810,705 |   |
| Proceeds  from the sale of investments                                            |       | 1,000,000       |       | 2,000,000 |   | — |   | 3,000,000 |   |
| Purchase of  investments                                                          |       | (8,993,000      | )          | — |   | — |   | (8,993,000 | ) |
| Capital  expenditures                                                             |       | (9,928,857      | )          | (2,597,137 | ) | — |   | (12,525,994 | ) |
| Net cash  used in investing activities                                            |       | (17,111,152     | )          | (597,137 | ) | — |   | (17,708,289 | ) |
|                                                                              |       |            |       |   |   |   |   |   |   |
| **Cash  flows from financing activities**                                         |       |            |       |   |   |   |   |   |   |
| Change in  book overdraft                                                         |       | —          |       | 587,080 |   | — |   | 587,080 |   |
| Net decrease  in the line of credit                                               |       | (5,500,000      | )          | (3,900,000 | ) | — |   | (9,400,000 | ) |
| Proceeds  from issuance of long-term debt                                         |       | —          |       | 61,653 |   | — |   | 61,653 |   |
| Principal  payments on long-term debt                                             |       | (3,830,582      | )          | (13,078 | ) | — |   | (3,843,660 | ) |
| Net cash  used in financing activities                                            |       | (9,330,582      | )          | (3,264,345 | ) | — |   | (12,594,927 | ) |
| Net increase  in cash and cash equivalents                                        |       | 1,002,048       |       | 3,246,248 |   | — |   | 4,248,296 |   |
| **Cash and  cash equivalents**                                                    |       |            |       |   |   |   |   |   |   |
| Beginning of  year                                                                |       | 650,522         |       | 391,849 |   | — |   | 1,042,371 |   |
| End of year                                                                       |       | $               | 1,652,570  |   | $ | 3,638,097 |   | $ | — |   | $ | 5,290,667 |   |

 

F-28

----

 

Condensed consolidated statement of cash flows forthe six-month period ended June 30, 2004:

 
| ** **                                                                                   | ** ** | **Predecessor** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                   | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                                    |       |            |       |   |   |   |   |   |   |
| Net income                                                                                   |       | $               | 1,447,341  |   | $ | 4,086,992 |   | $ | (4,086,992 | ) | $ | 1,447,341 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities |       |            |       |   |   |   |   |   |   |
| Depreciation  of property and equipment                                                      |       | 900,431         |       | 486,473 |   | — |   | 1,386,904 |   |
| Equity in  earnings of subsidiary guarantors                                                 |       | (4,086,992      | )          | — |   | 4,086,992 |   | — |   |
| Compensation  expense for Employee                                                           |       |            |       |   |   |   |   |   |   |
| Stock  Ownership Trust shares released and committed to be released                          |       | 2,344,292       |       | — |   | — |   | 2,344,292 |   |
| Compensation  expense for stock options                                                      |       | 713,433         |       | — |   | — |   | 713,433 |   |
| Other  stock-based compensation expense                                                      |       | 3,266,814       |       | — |   | — |   | 3,266,814 |   |
| Stock  compensation plans                                                                    |       | (4,270,995      | )          | — |   | — |   | (4,270,995 | ) |
| Changes in  assets and liabilities                                                           |       |            |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                                   |       | (1,294,593      | )          | 2,484,055 |   | — |   | 1,189,462 |   |
| Interdivisional  receivables/payables, net                                                   |       | 3,768,359       |       | (3,768,359 | ) | — |   | — |   |
| Inventories                                                                                  |       | (1,351,831      | )          | (3,341,244 | ) | — |   | (4,693,075 | ) |
| Prepaid  expenses and other current assets                                                   |       | 7,032           |       | 155,117 |   | — |   | 162,149 |   |
| Other  noncurrent asset                                                                      |       | (36,950         | )          | (19,951 | ) | — |   | (56,901 | ) |
| Trade  accounts payable and accrued expenses                                                 |       | 59,727          |       | (2,020,934 | ) | — |   | (1,961,207 | ) |
| Net cash  provided by (used in) operating activities                                         |       | 1,466,068       |       | (1,937,851 | ) | — |   | (471,783 | ) |
| **Cash  flows from investing activities**                                                    |       |            |       |   |   |   |   |   |   |
| Payments  received on notes receivable                                                       |       | 610,100         |       | — |   | — |   | 610,100 |   |
| Proceeds  from the sale of investments                                                       |       | 19,988,514      |       | — |   | — |   | 19,988,514 |   |
| Purchases of  investments                                                                    |       | (30,007,514     | )          | — |   | — |   | (30,007,514 | ) |
| Capital  expenditures                                                                        |       | (1,609,129      | )          | (773,591 | ) | — |   | (2,382,720 | ) |
| Net cash  used in investing activities                                                       |       | (11,018,029     | )          | (773,591 | ) | — |   | (11,791,620 | ) |
| **Cash  flows from financing activities**                                                    |       |            |       |   |   |   |   |   |   |
| Change in  book overdraft                                                                    |       | 990,692         |       | (747,665 | ) | — |   | 243,027 |   |
| Net increase  in the line of credit                                                          |       | 8,700,000       |       | — |   | — |   | 8,700,000 |   |
| Principal  payments on long-term debt                                                        |       | (618,096        | )          | (11,209 | ) | — |   | (629,305 | ) |
| Net cash  provided by (used in) financing activities                                         |       | 9,072,596       |       | (758,874 | ) | — |   | 8,313,722 |   |
| Net decrease  in cash and cash equivalents                                                   |       | (479,365        | )          | (3,470,316 | ) | — |   | (3,949,681 | ) |
| **Cash and  cash equivalents**                                                               |       |            |       |   |   |   |   |   |   |
| Beginning of  period                                                                         |       | 1,652,570       |       | 3,638,097 |   | — |   | 5,290,667 |   |
| End of  period                                                                               |       | $               | 1,173,205  |   | $ | 167,781 |   | $ | — |   | $ | 1,340,986 |   |

 

F-29

----

 

Condensed consolidated statementof cash flows for the six-month period ended December 31, 2004:

 
| ** **                                                                        | ** ** | **Successor**        | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                        | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                         |       |                 |       |   |   |   |   |   |   |   |   |
| Net income                                                                        |       | $                    | (22,923    | ) | $ | (22,923 | ) | $ | 1,955,227 |   | $ | (1,932,304 | ) | $ | (22,923 | ) |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |                 |       |   |   |   |   |   |   |   |   |
| Depreciation  of property and equipment                                           |       | —               |       | 1,020,194 |   | 735,667 |   | — |   | 1,755,861 |   |
| Amortization  of intangibles                                                      |       | —               |       | 1,935,624 |   | 411,666 |   | — |   | 2,347,290 |   |
| Amortization  of step-up in inventory                                             |       | —               |       | 1,319,940 |   | 447,097 |   | — |   | 1,767,037 |   |
| Amortization  of bond issuance cost                                               |       | —               |       | 294,942 |   | — |   | — |   | 294,942 |   |
| Equity in  earnings of subsidiary guarantors                                      |       | 22,923               |       | (1,955,227 | ) | — |   | 1,932,304 |   | 0 |   |
| Loss on  disposal of assets                                                       |       | —               |       | 71,500 |   | — |   | — |   | 71,500 |   |
| Compensation  expense for stock options                                           |       | —               |       | 146,400 |   | — |   | — |   | 146,400 |   |
| Deferred tax  liability                                                           |       | —               |       | 912,067 |   | — |   | — |   | 912,067 |   |
| Changes in  assets and liabilities                                                |       |                 |       |   |   |   |   |   |   |   |   |
| Trade  accounts receivable                                                        |       | —               |       | (4,413,429 | ) | (9,442,865 | ) | — |   | (13,856,294 | ) |
| Interdivisional  receivables/payables, net                                        |       | —               |       | (4,720,661 | ) | 4,720,661 |   | — |   | — |   |
| Inventories                                                                       |       | —               |       | (393,221 | ) | 1,556,844 |   | — |   | 1,163,623 |   |
| Prepaid  expenses and other current assets                                        |       | —               |       | (246,316 | ) | (284,791 | ) | — |   | (531,107 | ) |
| Other  noncurrent asset                                                           |       | —               |       | (57,230 | ) | (4,883 | ) | — |   | (62,113 | ) |
| Trade  accounts payable and accrued                                               |       |                 |       |   |   |   |   |   |   | — |   |
| expenses                                                                          |       | —               |       | 6,537,529 |   | 2,752,743 |   | — |   | 9,290,272 |   |
| Accrued bond  cost and LOC interest                                               |       | —               |       | 6,796,875 |   | — |   | — |   | 6,796,875 |   |
| Taxes  payable                                                                    |       | —               |       | 51,950 |   | — |   | — |   | 51,950 |   |
| Net cash  provided by operating activities                                        |       | —               |       | 7,278,014 |   | 2,847,366 |   | — |   | 10,125,380 |   |
| **Cash  flows from investing activities**                                         |       |                 |       |   |   |   |   |   |   |   |   |
| Business  acquired                                                                |       | —               |       | (165,035,252 | ) | — |   | — |   | (165,035,252 | ) |
| Investment  in subsidiary stock                                                   |       | (37,500,000          | )          | 0 |   | 0 |   | 37,500,000 |   | 0 |   |
| Capital  expenditures                                                             |       | —               |       | (3,657,288 | ) | (643,810 | ) | — |   | (4,301,098 | ) |
| Net cash  used in investing activities                                            |       | —               |       | (168,692,540 | ) | (643,810 | ) | — |   | (169,336,350 | ) |
| **Cash  flows from financing activities**                                         |       |                 |       |   |   |   |   |   |   |   |   |
| Proceeds  from issuance of long-term debt                                         |       | —               |       | 125,000,000 |   | — |   | — |   | 125,000,000 |   |
| Proceeds  from issuance of common stock                                           |       | 37,500,000           |       | 37,500,000 |   | — |   | (37,500,000 | )  | 37,500,000 |   |
| Net cash  provided by financing activities                                        |       | —               |       | 162,500,000 |   | — |   | — |   | 162,500,000 |   |
| Net increase  in cash and cash equivalents                                        |       | —               |       | 1,085,474 |   | 2,203,556 |   | — |   | 3,289,030 |   |
| **Cash and  cash equivalents**                                                    |       |                 |       |   |   |   |   |   |   |   |   |
| Beginning of  period                                                              |       | —               |       | — |   | — |   | — |   | — |   |
| End of  period                                                                    |       | $                    | —     |   | $ | 1,085,474 |   | $ | 2,203,556 |   | $ | — |   | $ | 3,289,030 |   |

 

F-30

----

 

Condensedconsolidated statement of cash flows for the year ended December 31, 2005:

 
| ** **                                                                        | ** ** | **Successor**             | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                        | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                         |       |                      |       |   |   |   |   |   |   |   |   |
| Net income                                                                        |       | $                         | 2,823,682  |   | $ | 6,616,591 |   | $ | 9,718,961 |   | $ | (16,335,552 | ) | $ | 2,823,682 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |                      |       |   |   |   |   |   |   |   |   |
| Equity in  earnings of subsidiary guarantors                                      |       | (6,616,591                | )          | (9,718,961 | ) | — |   | 16,335,552 |   | — |   |
| Depreciation  of property and equipment                                           |       | —                    |       | 2,594,701 |   | 1,331,357 |   | — |   | 3,926,058 |   |
| Amortization  of intangibles                                                      |       | —                    |       | 3,871,250 |   | 823,333 |   | — |   | 4,694,583 |   |
| Amortization  of bond issuance cost                                               |       | 335,671                   |       | 682,800 |   | — |   | — |   | 1,018,471 |   |
| Deferred tax  liability                                                           |       | —                    |       | 1,707,525 |   | — |   | — |   | 1,707,525 |   |
| Interest  expense on Senior PIK Notes                                             |       | 3,335,508                 |       |   |   |   |   |   |   | 3,335,508 |   |
| Compensation  expense for stock options                                           |       | —                    |       | 86,280 |   | — |   | — |   | 86,280 |   |
| Changes in  assets and liabilities                                                |       |                      |       |   |   |   |   |   |   |   |   |
| Trade  accounts receivable                                                        |       | —                    |       | (478,420 | ) | (4,852,099 | ) | — |   | (5,330,519 | ) |
| Interdivisional  receivables/payables, net                                        |       | —                    |       | 936,358 |   | (936,358 | ) | — |   | — |   |
| Inventories                                                                       |       | —                    |       | (1,552,079 | ) | (2,270,101 | ) | — |   | (3,822,180 | ) |
| Prepaid  expenses and other current assets                                        |       | (4,270                    | )          | 12,012 |   | (106,881 | ) | — |   | (99,139 | ) |
| Other  noncurrent asset                                                           |       | —                    |       | (36,415 | ) | (25,181 | ) | — |   | (61,596 | ) |
| Trade  accounts payable and accrued                                               |       |                      |       |   |   |   |   |   |   |   |   |
| expenses                                                                          |       | 97,600                    |       | 7,462,833 |   | 11,381,115 |   | — |   | 18,941,548 |   |
| Accrued bond  cost and LOC interest                                               |       | —                    |       | (519,979 | ) | — |   | — |   | (519,979 | ) |
| Taxes  payable                                                                    |       | —                    |       | 925,287 |   | — |   | — |   | 925,287 |   |
| Net cash  provided by operating activities                                        |       | (28,400                   | )          | 12,589,783 |   | 15,064,146 |   | — |   | 27,625,529 |   |
| **Cash  flows from investing activities**                                         |       |                      |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                             |       | —                    |       | (13,166,081 | ) | (446,117 | ) | — |   | (13,612,198 | ) |
| Net cash  (used in) investing activities                                          |       | —                    |       | (13,166,081 | ) | (446,117 | ) | — |   | (13,612,198 | ) |
| **Cash flows  from financing activities**                                         |       |                      |       |   |   |   |   |   |   |   |   |
| Proceeds  from issuance of Senior PIK Notes                                       |       | 26,000,000                |       | — |   | — |   | — |   | 26,000,000 |   |
| Capitalized  bond issuance cost                                                   |       | (2,505,634                | )          | — |   | — |   | — |   | (2,505,634 | ) |
| Return of  Capital payments                                                       |       | (23,461,993               | )          | — |   | — |   | — |   | (23,461,993 | ) |
| Net cash  provided by financing activities                                        |       | 32,373                    |       | — |   | — |   | — |   | 32,373 |   |
| Net increase  in cash and cash equivalents                                        |       | 3,973                     |       | (576,298 | ) | 14,618,029 |   | — |   | 14,045,704 |   |
| **Cash and  cash equivalents**                                                    |       |                      |       |   |   |   |   |   |   |   |   |
| Beginning of  period                                                              |       | —                    |       | 1,085,474 |   | 2,203,556 |   | — |   | 3,289,030 |   |
| End of  period                                                                    |       | $                         | 3,973      |   | $ | 509,176 |   | $ | 16,821,585 |   | $ | — |   | $ | 17,334,734 |   |

 

**16. Subsequent Event**

 

On February 6, 2006, we announced ourintentions to discontinue assembly operations at our McAllen, Texas facilityand shift all operations to our Cincinnati, Ohio facility. In connection withthis initiative we anticipate recording approximately $13.0 million of cost in2006, of which $3.0 million will be non-cash expenses.

 

F-31

----