**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

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

 

**For thequarterly period ended July 1, 2006**

 

**or**

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

 

**For thetransition period from            to         **

 

**CommissionFile Number: 333-124826**

 

**TWC HoldingLLC**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                           | ** ** | **59-3781176**                        |
|--------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of                       |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                        |       |                                  |
|                                                   |       |                                  |
| **4701  Creek Road, Suite 200, Cincinnati, Ohio** | ** ** | **45242**                             |
| (Address of principal  executive offices)              |       | (Zip code)                            |

** **

**(513)794-9800**

(Registrant’s telephone number,including area code)

 

**N/A**

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. o  Yes    x  No

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of The Exchange Act. (Check one):

 

Large acceleratedfiler  o    Acceleratedfiler  o    Non-acceleratedfiler  x

 

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

 

The Registrant has two classes of membershipinterests. As of August 5, 2006, Veritas Capital Management II, L.L.C.held 94.7% of the class A membership interests and the remaining interests wereheld by various persons or entities.

 

 

----

 

**TWC HOLDING LLCTable of Contents**

 
| **PART I -  FINANCIAL INFORMATION**                                                                                                    | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                                                   |       |       |
| Item 1. Financial Statements  (unaudited)                                                                                              |       |       |
| Unaudited Consolidated Balance Sheets  at December 31, 2005 and July 1, 2006                                                           |       |       |
|                                                                                                                                   |       |       |
| Unaudited  Consolidated Statements of Operations for  the Thirteen Weeks and the Twenty-Six Weeks Ended July 2, 2005 and July 1,  2006 |       |       |
|                                                                                                                                   |       |       |
| Unaudited  Consolidated Statements of Cash Flows for  the Twenty-Six Weeks Ended July 2, 2005 and July 1, 2006                         |       |       |
|                                                                                                                                   |       |       |
| Notes  to Unaudited Consolidated Financial Statements                                                                                  |       |       |
|                                                                                                                                   |       |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                   |       |       |
|                                                                                                                                   |       |       |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                                                    |       |       |
|                                                                                                                                   |       |       |
| Item 4. Controls  and Procedures                                                                                                       |       |       |
|                                                                                                                                   |       |       |
| Forward-Looking  Statements                                                                                                            |       |       |
|                                                                                                                                   |       |       |
| **PART  II - OTHER INFORMATION**                                                                                                       | ** ** | ** ** |
|                                                                                                                                   |       |       |
| Item 1. Legal  Proceedings                                                                                                             |       |       |
|                                                                                                                                   |       |       |
| Item 1A. Risk Factors                                                                                                                  |       |       |
|                                                                                                                                   |       |       |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |       |       |
|                                                                                                                                   |       |       |
| Item 3.  Defaults Upon Senior Securities                                                                                               |       |       |
|                                                                                                                                   |       |       |
| Item 4.  Submission of Matters to a Vote of Security Holders                                                                           |       |       |
|                                                                                                                                   |       |       |
| Item 5. Other  Information                                                                                                             |       |       |
|                                                                                                                                   |       |       |
| Item 6. Exhibits                                                                                                                       |       |       |
|                                                                                                                                   |       |       |
| Signatures                                                                                                                             |       |       |

 

2

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**PART I FINANCIAL INFORMATION**

 

**Item 1.    Financial Statements.**

 

**TWC HOLDINGLLC**

**ConsolidatedBalance Sheets**

**(Unaudited)**

 
| ** **                                 | ** ** | **December 31, 2005** | ** **  | **July 1, 2006** | ** ** |
|--------------------------------------------|------------|---------------------------------|-------------|----------------------------|------------|
| * *                                   | * *   | * *                        | * *    | * *                   | * *   |
| **Assets**                                 |       |                            |        |                       |       |
| Current assets                             |       |                            |        |                       |       |
| Cash and cash equivalents                  |       | $                               | 17,334,734  |                       | $          | 3,973 |   |
| Trade accounts receivable, net             |       | 19,186,813                      |        | 17,619,266                 |       |
| Inventories                                |       | 27,954,296                      |        | 29,937,978                 |       |
| Prepaid expenses and other current assets  |       | 630,244                         |        | 939,647                    |       |
| Deferred income taxes                      |       | 1,403,035                       |        | 654,611                    |       |
| Total current assets                       |       | 66,509,122                      |        | 49,155,475                 |       |
| Property and equipment, net                |       | 42,914,227                      |        | 45,782,697                 |       |
| Goodwill                                   |       | 77,573,207                      |        | 77,573,207                 |       |
| Intangible assets, net                     |       | 17,128,127                      |        | 14,780,836                 |       |
| Other noncurrent assets                    |       | 7,224,698                       |        | 6,414,706                  |       |
| Total assets                               |       | $                               | 211,349,381 |                       | $          | 193,706,921 |   |
| **Liabilities and Members' Equity**        |       |                            |        |                       |       |
| Current liabilities                        |       |                            |        |                       |       |
| Book overdrafts                            |       | $                               | —      |                       | $          | 4,730,888 |   |
| Trade accounts payable                     |       | 19,900,050                      |        | 13,912,741                 |       |
| Accrued expenses                           |       | 8,331,770                       |        | 5,603,467                  |       |
| Accrued interest                           |       | 6,276,896                       |        | 6,305,990                  |       |
| Taxes payable                              |       | 977,237                         |        | —                     |       |
| Total current liabilities                  |       | 35,485,953                      |        | 30,553,086                 |       |
| Line of credit                             |       | —                          |        | 2,800,000                  |       |
| Deferred income taxes                      |       | 4,022,627                       |        | 4,223,628                  |       |
| Other liabilities                          |       | 433,848                         |        | 706,490                    |       |
| Long-term debt                             |       | 154,335,507                     |        | 156,347,708                |       |
| Total liabilities                          |       | 194,277,935                     |        | 194,630,912                |       |
| Members’ equity                       |       |                            |        |                       |       |
| Members’ interest                     |       | 14,038,007                      |        | 14,038,007                 |       |
| Additional paid-in capital                 |       | 232,680                         |        | 275,264                    |       |
| Retained earnings (deficit)                |       | 2,800,759                       |        | (15,237,262                | )          |
| Total members’ equity(deficit)        |       | 17,071,446                      |        | (923,991                   | )          |
| Total liabilities and members’ equity |       | $                               | 211,349,381 |                       | $          | 193,706,921 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

3

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**TWC HOLDINGLLC**

**ConsolidatedStatements of Operations**

**(Unaudited)**

 
| ** **                                    | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|-----------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                    | ** ** | **July 2, 2005**         | ** ** | **July 1, 2006**           | ** ** | **July 2, 2005** | ** ** | **July 1, 2006** | ** ** |
|                                          |       |                               |       |                                 |       |   |   |   |   |
| Net sales                                     |       | $                                  | 44,392,948 |                                 | $          | 52,722,928 |   | $ | 103,225,163 |   | $ | 118,473,616 |   |
| Cost of sales                                 |       | 36,418,430                         |       | 48,718,980                           |       | 88,801,955 |   | 109,997,421 |   |
| Gross profit                                  |       | 7,974,518                          |       | 4,003,948                            |       | 14,423,208 |   | 8,476,195 |   |
| Selling, general and administrative  expenses |       | 4,702,290                          |       | 8,421,819                            |       | 9,554,540 |   | 16,433,121 |   |
| Operating profit (loss)                       |       | 3,272,228                          |       | (4,417,871                           | )          | 4,868,668 |   | (7,956,926 | ) |
| Other income (expense)                        |       |                               |       |                                 |       |   |   |   |   |
| Interest income                               |       | 65,153                             |       | —                               |       | 98,934 |   | 63,369 |   |
| Interest expense                              |       | (4,590,684                         | )          | (4,712,935                           | )          | (8,703,720 | ) | (9,040,068 | ) |
| Other expense, net                            |       | (107,664                           | )          | (511                                 | )          | (27,225 | ) | (154,973 | ) |
| Total other expense                           |       | (4,633,195                         | )          | (4,713,446                           | )          | (8,632,011 | ) | (9,131,672 | ) |
| Loss before income taxes                      |       | (1,360,967                         | )          | (9,131,317                           | )          | (3,763,343 | ) | (17,088,598 | ) |
| Provision for income taxes                    |       | 404,050                            |       | 486,795                              |       | 960,170 |   | 949,425 |   |
| Net loss                                      |       | $                                  | (1,765,017 | )                                    | $          | (9,618,112 | ) | $ | (4,723,513 | ) | $ | (18,038,023 | ) |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

4

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**TWC HOLDINGLLC**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                                | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                | ** ** | **July 2, 2005**           | ** ** | **July 1, 2006** | ** ** |
| **Cash flows from operating activities**                                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net loss                                                                                  |       | $                                    | (4,723,513 | ) | $ | (18,038,023 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities |       |                                 |       |   |   |
| Depreciation of property and equipment                                                    |       | 1,911,292                            |       | 4,069,858 |   |
| Amortization of intangibles and bond issue  cost                                          |       | 2,836,420                            |       | 2,547,950 |   |
| Deferred tax asset                                                                        |       | —                               |       | 748,424 |   |
| Deferred tax liability                                                                    |       | 912,000                              |       | 201,001 |   |
| Payment-in-kind interest                                                                  |       | 846,552                              |       | 1,834,573 |   |
| Compensation expense for stock options                                                    |       | 9,983                                |       | 42,584 |   |
| Changes in assets and liabilities                                                         |       |                                 |       |   |   |
| Trade accounts receivable                                                                 |       | 2,023,183                            |       | 1,567,547 |   |
| Inventories                                                                               |       | 2,849,734                            |       | (1,983,682 | ) |
| Prepaid expenses and other current assets                                                 |       | (419,143                             | )          | (309,401 | ) |
| Other noncurrent assets                                                                   |       | (38,625                              | )          | 803,030 |   |
| Trade accounts payable and accrued expenses                                               |       | 891,032                              |       | (8,715,612 | ) |
| Book overdraft                                                                            |       | —                               |       | 4,730,888 |   |
| Accrued bond interest                                                                     |       |                                 |       | 29,094 |   |
| Taxes payable                                                                             |       | (51,950                              | )          | (977,237 | ) |
| Other liabilities                                                                         |       | —                               |       | 272,642 |   |
| Net cash provided by (used in) operating activities                                       |       | 7,046,965                            |       | (13,176,364 | ) |
| **Cash flows from investing activities**                                                  |       |                                 |       |   |   |
| Capital expenditures                                                                      |       | (7,185,684                           | )          | (6,954,397 | ) |
| Net cash used in investing activities                                                     |       | (7,185,684                           | )          | (6,954,397 | ) |
| **Cash flows from financing activities**                                                  |       |                                 |       |   |   |
| Capitalized bond issuance cost                                                            |       | (2,590,612                           | )          | — |   |
| Borrowings on line of credit                                                              |       | —                               |       | 9,500,000 |   |
| Payments on line of credit                                                                |       | —                               |       | (6,700,000 | ) |
| Proceeds from issuance of Senior PIK Notes                                                |       | 26,000,000                           |       | — |   |
| Return of Capital                                                                         |       | (23,461,993                          | )          | — |   |
| Net cash (used in) provided by financing activities                                       |       | (52,605                              | )          | 2,800,000 |   |
| Net decrease in cash and cash equivalents                                                 |       | (191,324                             | )          | (17,330,761 | ) |
| **Cash and cash equivalents**                                                             |       |                                 |       |   |   |
| Beginning of period                                                                       |       | 3,289,030                            |       | 17,334,734 |   |
| End of period                                                                             |       | $                                    | 3,097,706  |   | $ | 3,973 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

5

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**TWC Holding LLC**

**Notes toUnaudited Consolidated Financial Statements**

 

**1.****     ****Description of Business**

 

TWCHolding LLC (the “Company”) and its wholly owned subsidiaries The WornickCompany, a Delaware corporation (“Wornick” or the “Operating Company”) and TWCHolding Corp were formed by The Veritas Capital Fund II, L.P., and its generalpartner, Veritas Capital Management II, L.L.C. (collectively “Veritas”).Wornick and Veritas entered into an Asset Purchase and Sale Contract with TheWornick Company, a Nevada corporation (the “Predecessor”), and itssubsidiaries, The Wornick Company Right Away Division, a Nevada corporation,The Wornick Company Right Away Division, L.P., a Texas limited partnership, andRight Away Management Corporation, a Texas corporation, that was consummated onJune 30, 2004 (the “Acquisition Date”), and that resulted in the purchaseby the Company and its subsidiaries, and in 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. TWC Holding Corp. has no operations or assetsand de minimus equity and was formed for the purpose of being a co-issuer ofthe Senior PIK Notes described in Note 6 to the unaudited consolidatedfinancial statements.

 

TheCompany, through Wornick, produces, packages and distributes extendedshelf-life foods, both shelf stable and frozen, in flexible pouches andsemi-rigid containers, primarily for the U.S. Department of Defense (the “DoD”)and commercial customers, as well as for its own consumer-branded products. TheCompany supplies to the DoD Meals Ready-to-Eat ("MREs"), UnitizedGroup Rations-A ("UGR-As") and the polymeric trays used in theUnitized Group Rations-Heat & Serve program.

 

The Company has two operating segments: theRight Away Division (“RAD”) and the Prepared Foods Division (“PFD”). RAD islocated in Texas and primarily sells its product to the DoD. PFD is located inOhio and also sells directly to the DoD as well as to commercial branded foodcompanies and inter-segment sales to RAD. 

**2.****     ****Basis of Presentation**

 

Theaccompanying unaudited interim consolidated financial statements, also referredto as our interim or unaudited “consolidated financial statements,” have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and the instructionsto Form 10-Q and Article 10 of Regulation S-X under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do notinclude all of the information and footnotes normally included in financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America. In the opinion of management, the interimconsolidated financial statements reflect all adjustments of a normal recurringnature considered necessary for a fair presentation of the results for theperiods presented. Operating results for interim periods are not necessarilyindicative of results that may be expected for the fiscal year as a whole. 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,liabilities, revenues, expenses and related disclosures at the date of thefinancial statements and during the reporting period. Actual amounts coulddiffer from these estimates. These unaudited interim consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements for the year ended December 31, 2005 and notesthereto included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2005, filed with the Securities and Exchange Commission(the “SEC”) on March 31, 2006.

 

Following are the datesrepresented by each period reported in these financial statements:

“Thirteen Weeks Ended July 2,2005":  April 3, 2005 – July 2, 2005

“Thirteen Weeks Ended July 1,2006":  April 2, 2006 – July 1, 2006"Twenty-Six Weeks Ended July 2, 2005":  January 1, 2005 – July 2, 2005 

"Twenty-Six Weeks Ended July 1, 2006":  January 1, 2006 – July 1, 2006.

 

**3.****     ****Restructuring and OtherRelated Charges**

 

OnFebruary 6, 2006, Wornick announced plans to relocate the assemblyoperations of its RAD in McAllen, Texas to the Company’s Cincinnati, Ohiolocation in order to better position the Company’s production and assemblyoperations from a geographical standpoint, simplify logistics and reduce costand delivery times to customers. The Company anticipates that its consolidationwill be completed at the end of the third quarter of 2006.

 

TheCompany anticipates that total pretax charges incurred to complete therestructuring will be approximately $4.1 million. Of the $4.1 million,$1.3 million will be paid out to the 244 employees (under pay-to-stayseverance arrangements) currently located at the McAllen, Texas assemblyfacilities. We anticipate that all of these employees will be terminated uponcompletion of the consolidation. The remaining expenses are related toaccelerated depreciation on property and equipment of approximately $2.8million, which the Company anticipates will be abandoned upon its exit from theMcAllen facilities.

 

Duringthe thirteen weeks and twenty-six weeks ended July 1, 2006, the Companyrecorded total pretax charges of $1,546,946, and $2,733,031, respectively, allof which was recorded in the RAD segment. Of

 

6

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the$1,546,946 and $2,733,031 in pretax charges, $530,207 and $883,678 wereincluded in selling, general and administrative expense, during the thirteenand twenty-six weeks ended July 1, 2006, respectively. These costs wereincurred for pay-to-stay severance arrangements for employees, none of whom hadbeen terminated as of July 1, 2006, and $1,016,739 and $1,849,353, for thethirteen and twenty-six weeks ended July 1, 2006 respectively, were related toaccelerated depreciation on assets to be abandoned included in cost of sales.

 

Asummary of the costs incurred relating to the restructuring plan is as follows:

 
| ** **          | ** ** | ** **     | ** ** | ** **  | ** ** | **Non-Cash** | ** ** | ** **   | ** ** | ** **   | ** ** |
|---------------------|------------|----------------|------------|-------------|------------|--------------|------------|--------------|------------|--------------|------------|
| ** **          | ** ** | **12/31/2005** | ** ** | **Charges** | ** ** | **Charges**  | ** ** | **Payments** | ** ** | **7/1/2006** | ** ** |
| Asset write-downs   |       | $              | —     |        | $          | 1,849,353    |       | $            | (1,849,353 | )            | $          | — |   | $ | — |   |
| Employee cost       |       | —         |       | 883,678     |       | —       |       | —       |       | 883,678      |       |
| Remaining Liability |       | $              | —     |        | $          | 2,733,031    |       | $            | (1,849,353 | )            | $          | — |   | $ | 883,678 |   |

 

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

 

**Inventories**

 

A summary of inventories isas follows:

 
| ** **      | ** ** | **December 31,** | ** ** | **July 1,** | ** ** |
|-----------------|------------|-----------------------|------------|------------------|------------|
| ** **      | ** ** | **2005**              | ** ** | **2006**         | ** ** |
| Raw materials   |       | $                     | 17,389,308 |             | $          | 19,151,020 |   |
| Work in process |       | 1,593,696             |       | 2,453,442        |       |
| Finished goods  |       | 8,971,292             |       | 8,333,516        |       |
|            |       | $                     | 27,954,296 |             | $          | 29,937,978 |   |

 

**Property and Equipment, Net**

 

Asummary of property and equipment, net is as follows:

 
| ** **                                             | ** ** | **December 31,** | ** ** | **July 1,** | ** ** |
|--------------------------------------------------------|------------|-----------------------|------------|------------------|------------|
| ** **                                             | ** ** | **2005**              | ** ** | **2006**         | ** ** |
| Leasehold improvements                                 |       | $                     | 1,784,800  |             | $          | 3,561,367 |   |
| Machinery and equipment                                |       | 30,166,266            |       | 45,200,261       |       |
| Office equipment, fixtures and vehicles                |       | 2,640,021             |       | 3,054,132        |       |
| Construction in progress                               |       | 14,005,059            |       | 3,718,714        |       |
|                                                   |       | 48,596,146            |       | 55,534,474       |       |
| Less:   Accumulated depreciation and amortization |       | 5,681,919             |       | 9,751,777        |       |
|                                                   |       | $                     | 42,914,227 |             | $          | 45,782,697 |   |

 

Depreciationexpense for the twenty-six weeks ended July 2, 2005 and July 1, 2006was approximately $1,911,000 and $4,070,000, respectively. (See Note 3 forfurther details regarding accelerated depreciation charges.)

 

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

 

Inconnection with the Acquisition described in Note 1, 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. Aggregate accumulated amortization of intangibles atDecember 31, 2005 and July 1, 2006 amounted to $7,041,873 and $9,389,164,respectively. Expense related to amortization of intangible assets for thetwenty-six weeks ended July 1, 2006 amounted to $2,347,291.

 

7

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Scheduledamortization of these assets is as follows:

 
| July 2, 2006 through December 31, 2006 |   | $         | 2,347,289  |   |
|----------------------------------------|--------|-----------|------------|--------|
| 2007                                   |   | 4,627,918 |       |
| 2008                                   |   | 4,856,248 |       |
| 2009                                   |   | 2,421,226 |       |
| 2010                                   |   | 496,296   |       |
| Thereafter                             |   | 31,859    |       |
|                                   |   | $         | 14,780,836 |   |

 

**6.      NotesPayable and Long-term Debt**

** **
| ** **                                                                                                 | ** ** | **December 31,** | ** **  | **July 1,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|------------------|------------|
| ** **                                                                                                 | ** ** | **2005**              | ** **  | **2006**         | ** ** |
| Revolving loan agreement, due 2009, (7.25%  and 8.25% at December 31, 2005 and July 1, 2006, respectively) |       | $                     | —      |             | $          | 2,800,000 |   |
|                                                                                                       |       |                  |        |             |       |
| 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            |        | 31,347,708       |       |
|                                                                                                       |       |                  |        |             |       |
| Less: Current maturities                                                                                   |       | —                |        | —           |       |
| Long-term debt, excluding current  maturities                                                              |       | $                     | 154,335,507 |             | $          | 159,147,708 |   |

 

TheOperating Company also has a revolving loan agreement (the Revolving LoanAgreement”) that provides the Company $15.0 million of revolving loanfinancing through June 30, 2009, with an additional revolving creditfacility of $10.0 million becoming available upon the occurrence ofcertain events. Amounts outstanding under the Revolving Loan Agreement ($0 atDecember 31, 2005 and $2,800,000 at July 1, 2006) are due June 30,2009 and amounts outstanding are subject to limitations as determined by acalculated borrowing base. As of August 12, 2006, we had outstanding borrowingsof $12.0 million against the Revolving Loan Agreement. Our most recentcalculation of our borrowing base suggests we have sufficient assets to supportthe full $25.0 million borrowing available under the Revolving Loan Agreement,including the additional $10.0 million revolving credit facilities.

 

Intereston amounts outstanding under the Revolving Loan Agreement will vary at afluctuating rate per annum that is equal to the prime rate (7.25% atDecember 31, 2005 and 8.25% at July 1, 2006) as published daily by TheWall Street Journal. Amounts outstanding under the Revolving Loan Agreementare collateralized by substantially all of the operating assets of the Companyand its subsidiaries. The lien on such collateral is senior to the lien on thecollateral that secures the 10-7/8% senior secured notes (the “Senior SecuredNotes”). Interest expense incurred on the Senior Secured Notes and theRevolving Loan Agreement for the twenty-six weeks ended July 1, 2006 was$6,832,933 and $17,306, respectively.

 

TheSenior Secured Notes are collateralized by substantially all assets and otherproperty of the Company and its subsidiaries. The lien on such collateral,however, is subordinate to the lien on the collateral securing the RevolvingLoan Agreement. Interest on the Senior Secured Notes is payable semi-annually.

 

Amounts due under the Senior Secured Notes and the Revolving Loan Agreementare subject to an intercreditor agreement. The Company is required to meetcertain financial covenants related primarily to minimum working capitalamounts, minimum working capital ratios, minimum profitability and minimum networth calculations. As of July 1, 2006, we were in compliance with allfinancial covenants.  However, based onour most recent financial forecast, it is possible that we could violate one ormore of our financial covenants at December 31, 2006.  A violation of our financial covenants oneither the intercreditor agreement or our Revolving Loan Agreement could causeus to be in default on our other agreements, including the indentures governingour Senior Secured Notes and the Senior PIK Notes of our Parent Company.  In the event we were to violate any of ourfinancial covenants, we would seek to resolve the issue either by satisfyingthe covenant within the allotted period or by obtaining the appropriatewaivers.  If we are unable to mitigatethe covenant violation within the allotted period or unable to obtain waivers,the outstanding debt on the Senior Secured Notes and the Revolving LoanAgreement would become payable.

 

8

----

 

 

OnFebruary 11, 2005, the Company and its wholly-owned finance subsidiary,TWC Holding Corp., co-issued our 13.875% senior PIK notes due 2011, (the “SeniorPIK Notes,”) in the approximate aggregate principal amount of $62,259,000 witha discount 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 the Company and TWC Holding Corp. Neither the Operating Companynor any of its subsidiaries guaranteed the Senior PIK Notes. The Senior PIK Noteslimit the Company’s ability to incur additional indebtedness, to pay dividendsor make other distributions, to make certain investments and to sell certainassets or merge with or into other companies. Because we are a holding companywith no operations, because we have only our investment in theOperating Company and because TWC Holding Corp. has no independentoperations or assets, future cash flows or assets of the Operating Companythrough 2011 may be required to service the $62.3 million Senior PIK Notes upontheir maturity. Interest expense incurred on the Senior PIK Notes for thethirteen and twenty-six week periods ended July 1, 2006 was $1,128,945 and$2,189,829, respectively.

 

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

 

TheOperating Company provides for income taxes utilizing the asset liabilitymethod, whereby current income tax expense or benefit represents income taxesexpected to be payable or refundable for the current period. Deferred incometaxes are recognized for the tax consequences in future years as a result ofdifferences between the tax and financial reporting bases of assets andliabilities and for the expected future tax benefit to be derived from taxcredits and loss carryforwards. Valuation allowances are established whennecessary to reduce deferred tax assets to the amount management believes ismore likely than not to be realized in future tax returns. Tax rate changes arereflected in the period such changes are enacted. The Company recordedadditional valuation allowances on deferred tax assets of approximately $3,022,000and $6,338,000, respectively, for the thirteen and twenty-six weeks ended July1, 2006, due to the indefinite reversal period related to goodwillamortization.

 

**8.****     ****Share-Based CompensationPlan**

 

OnJanuary 1, 2006, the Company adopted Statement of Financial AccountingStandards No. 123 (Revised 2004) “*Share-BasedPayments*” (“SFAS No. 123R”), using the prospective adoptionmethod, which requires the application of the accounting standard on the firstday of the Company’s fiscal year 2006 for grants issued or modified subsequentto the date of adoption, January 1, 2006. The adoption of this newaccounting standard had no impact on the company’s consolidated financialstatements for the thirteen and twenty-six weeks ended July 1, 2006 since therewere no new awards issued or modified during this period.

 

TWCHolding LLC has two classes of membership interests, Class A interests andClass B interests. Certain members of our Operating Company management andoutside directors have received Class B interests. The Class Binterests are subject to a five-year vesting schedule with any unvestedinterest reverting to the holders of Class A interests. Because these Class Binterests were issued to members of our Operating Company's management anddirectors of the Operating Company, these awards are considered to becompensatory to the Operating Company over the vesting period. Compensationexpense related to these awards was $815 and $42,584, respectively, for thethirteen and twenty-six weeks ended July 1, 2006. For the thirteen weeks endedJuly 1, 2006, these compensation arrangements resulted in a benefit of $59,780due to the recapture of previously expensed amounts that resulted from theemployment terminations of certain management members during the period.

 

**9.****     ****Operating SegmentInformation**

 

TheOperating Company has two operating segments: the RAD and PFD. RAD is locatedin Texas and primarily sells its product to the DoD. PFD is located in Ohio andalso sells directly to the DoD as well as to commercial branded food companiesand inter-segment sales to RAD. Management evaluates segment performance basedon several factors, including operating profit.

 

9

----

 

Duringthe twenty-six weeks ended July 1, 2006, the RAD segment incurred approximately$2,733,000 of restructuring related charges.

 

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

 
| ** **                                   | ** ** | **(Unaudited)**                    | ** ** | **(Unaudited)**                       | ** ** |
|----------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                   | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-Six Weeks Ending** | ** ** |
| **(in thousands of dollars)** | ** ** | **July 2, 2005**         | ** ** | **July 1, 2006**            | ** ** | **July 2, 2005** | ** ** | **July 1, 2006** | ** ** |
| DoD Net sales                                |       |                               |       |                                  |       |   |   |   |   |
| Meals Ready-to-Eat (“MRE”)         |       | $                                  | 25,072     |                                  | $          | 19,090 |   | $ | 58,765 |   | $ | 52,069 |   |
| Unitized Group Rations-A (“UGR-A”) |       | 7,715                              |       | 9,784                                 |       | 22,300 |   | 26,116 |   |
| Military Other                               |       | 2,286                              |       | 1,727                                 |       | 3,534 |   | 2,395 |   |
| Total DoD net sales                          |       | 35,073                             |       | 30,601                                |       | 84,599 |   | 80,580 |   |
| Co-manufactured                              |       | 8,570                              |       | 21,699                                |       | 16,774 |   | 36,089 |   |
| Specialty and other                          |       | 750                                |       | 423                                   |       | 1,852 |   | 1,805 |   |
|                                         |       | $                                  | 44,393     |                                  | $          | 52,723 |   | $ | 103,225 |   | $ | 118,474 |   |
|                                              |            |                                    |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

Duringthe twenty-six weeks ended July 2, 2005 and July 1, 2006, the Company hadone major customer, which accounted for approximately $84,599,000 and$80,580,000, or 82.0% and 68%, of net revenue, respectively. Approximately$7,613,000, or 64.3%, and $7,021,000, or 40.2%, of net receivables wereattributable to this customer at July 2, 2005 and July 1, 2006,respectively.

 

Unauditedreportable operating segment financial information for the thirteen weeks endedJuly 2, 2005 and July 1, 2006 is as follows:

 
| ** **                  | ** ** | ** **  | ** ** | ** **        | ** ** | **Operating** | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
|-----------------------------|------------|-------------|------------|-------------------|------------|---------------|------------|-------------------|------------|-------------|------------|------------------|------------|
| ** **                  | ** ** | **Trade**   | ** ** | **Inter-segment** | ** ** | **Profit**    | ** ** | **Depreciation/** | ** ** | **Total**   | ** ** | **Capital**      | ** ** |
| **Operating Segments** | ** ** | **Revenue** | ** ** | **Revenue**       | ** ** | **(Loss)**    | ** ** | **Amortization**  | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
|                        |       |        |       |              |       |          |       |              |       |        |       |             |       |
| **Right  Away Division**    |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | $           | 33,627,700 |              | $          | —        |       | $                 | 7,190,901  |        | $          | 532,591          |       | $ | 32,928,896 |   | $ | 19,380 |   |
| July 1, 2006                |       | 30,173,993  |       | —            |       | 2,733,877     |       | 1,394,009         |       | 33,038,703  |       | 103,626          |       |
| **Prepared  Foods**         |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | 10,765,248  |       | 7,465,984         |       | (2,828,248    | )          | 1,604,553         |       | 62,982,950  |       | 5,364,617        |       |
| July 1, 2006                |       | 22,548,935  |       | 5,359,891         |       | 105,174       |       | 1,965,985         |       | 87,755,366  |       | 4,940,350        |       |
| **Corporate**               |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | —      |       | —            |       | (1,017,519    | )          | 170,700           |       | 112,499,592 |       | —           |       |
| July 1, 2006                |       | —      |       | —            |       | (7,256,922    | )          | 155,224           |       | 94,086,798  |       | —           |       |
| **Eliminations**            |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | —      |       | (7,465,984        | )          | —        |       | —            |       | (65,547,191 | )          | —           |       |
| July 1, 2006                |       | —      |       | (5,359,891        | )          | —        |       | —            |       | (51,597,663 | )          | —           |       |
| **TWC  Holding LLC**        |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | —      |       | —            |       | (72,906       | )          | 102,787           |       | 37,232,485  |       | —           |       |
| July 1, 2006                |       | —      |       | —            |       | —        |       | 84,631            |       | 30,423,717  |       | —           |       |
| **Total  Company**          |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | 44,392,948  |       | —            |       | 3,272,228     |       | 2,410,631         |       | 180,096,732 |       | 5,383,997        |       |
| July 1, 2006                |       | 52,722,928  |       | —            |       | (4,417,871    | )          | 3,599,849         |       | 193,706,921 |       | 5,043,976        |       |
|                             |            |             |            |                   |            |               |            |                   |            |             |            |                  |            |  |  |  |  |  |  |

 

Included in the total assets ofthe Corporate segment is approximately $77.5 million of goodwill, which istested annually for impairment.  Therecoverability of goodwill is based upon the fair value of the reportingsegments, which is determined by a discounted cash flow analysis.  For our analysis, goodwill was allocated toRAD and PFD at the Acquisition Date in the respective amounts of $28.9 millionand $48.6 million.  The Company hascompleted its annual impairment test of goodwill and has determined that therewas no impairment at December 31, 2005. We are unaware of any events that mayhave triggered the need for an interim assessment between our assessment dateand issuance of our Form 10-Q for the twenty-six weeks ended July 1, 2006.

 

10

----

 

 

Unauditedreportable operating segment financial information for the twenty-six weeksended July 2, 2005 and July 1, 2006 is a follows:

 
| ** **                  | ** ** | ** **  | ** ** | ** **        | ** ** | **Operating** | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
|-----------------------------|------------|-------------|------------|-------------------|------------|---------------|------------|-------------------|------------|-------------|------------|------------------|------------|
| ** **                  | ** ** | **Trade**   | ** ** | **Inter-segment** | ** ** | **Profit**    | ** ** | **Depreciation/** | ** ** | **Total**   | ** ** | **Capital**      | ** ** |
| **Operating Segments** | ** ** | **Revenue** | ** ** | **Revenue**       | ** ** | **(Loss)**    | ** ** | **Amortization**  | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
| ** **                  | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **       | ** ** |
| **Right  Away Division**    |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | $           | 82,595,537 |              | $          | —        |       | $                 | 12,077,800 |        | $          | 1,064,279        |       | $ | 32,928,896 |   | $ | 175,325 |   |
| July 1, 2006                |       | 80,516,265  |       | —            |       | 6,436,972     |       | 2,760,175         |       | 33,038,703  |       | 103,839          |       |
| **Prepared  Foods**         |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | 20,629,626  |       | 20,119,597        |       | (5,064,532    | )          | 3,194,305         |       | 62,982,950  |       | 7,010,359        |       |
| July 1, 2006                |       | 37,957,351  |       | 16,579,594        |       | (671,394      | )          | 3,656,974         |       | 87,755,366  |       | 6,850,558        |       |
| **Corporate**               |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | —      |       | —            |       | (2,071,694    | )          | 341,400           |       | 112,499,592 |       | —           |       |
| July 1, 2006                |       | —      |       | —            |       | (13,718,234   | )          | 23,031            |       | 94,086,798  |       | —           |       |
| **Eliminations**            |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | —      |       | (20,119,597       | )          | —        |       | —            |       | (65,547,191 | )          | —           |       |
| July 1, 2006                |       | —      |       | (16,579,594       | )          | —        |       | —            |       | (51,597,663 | )          | —           |       |
| **TWC  Holding LLC**        |       |        |       |              |       |          |       |              |       |        |       | —           |       |
| July 2, 2005                |       | —      |       | —            |       | (72,906       | )          | 147,728           |       | 37,232,485  |       | —           |       |
| July 1, 2006                |       | —      |       | —            |       | (4,270        | )          | 177,628           |       | 30,423,717  |       | —           |       |
| **Total  Company**          |       |        |       |              |       |          |       |              |       |        |       |             |       |
| July 2, 2005                |       | 103,225,163 |       | —            |       | 4,868,668     |       | 4,747,712         |       | 180,096,732 |       | 7,185,684        |       |
| July 1, 2006                |       | 118,473,616 |       | —            |       | (7,956,926    | )          | 6,617,808         |       | 193,706,921 |       | 6,954,397        |       |
|                             |            |             |            |                   |            |               |            |                   |            |             |            |                  |            |  |  |  |  |  |  |

 

**10.****  ****Consolidating FinancialInformation**

 

Thefollowing information presents the unaudited consolidating balance sheets atDecember 31, 2005 and July 1, 2006, the unaudited consolidating statementsof operations for the thirteen and twenty-six weeks ended July 2, 2005 and July1, 2006, the unaudited consolidating statements of cash flows for the twenty-sixweeks ended July 2, 2005 and July 1, 2006, respectively.

 

11

----

 

Consolidatingbalance sheet at December 31, 2005 (unaudited):

 
| ** **                                      | ** ** | **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      |       | 4,269                     |       | 234,304                                 |       | 391,671                    |       | —           |       | 630,244     |       |
| 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 Members’ 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                          |       | —                    |       | 4,022,627                               |       | —                     |       | —           |       | 4,022,627   |       |
| Other liabilities                               |       | —                    |       | 433,848                                 |       | —                     |       | —           |       | 433,848     |       |
| 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 |       |
| Members**’** 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 members’  equity/(deficit)           |       | 17,071,446                |       | 44,326,348                              |       | 38,298,917                 |       | (82,625,265      | )          | 17,071,446  |       |
| Total liabilities  and members**’** equity |       | $                         | 46,504,553 |                                    | $          | 195,037,318                |       | $                | 52,432,775 |        | $          | (82,625,265 | ) | $ | 211,349,381 |   |

 

12

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Consolidatingbalance sheet at July 1, 2006 (unaudited):

 
| ** **                                    | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|-----------------------------------------|-------------|----------------------------|------------|------------------|------------|-------------|------------|
| **Assets**                                    | ** ** | ** **                | ** ** | ** **                              | ** **  | ** **                 | ** ** | ** **       | ** ** | ** **  | ** ** |
| Current assets                                |       |                      |       |                                    |        |                       |       |             |       |        |       |
| Cash and cash  equivalents                    |       | $                         | 3,973      |                                    | $           | —                     |       | $                | —     |        | $          | — |   | $ | 3,973 |   |
| Trade accounts  receivable                    |       | —                    |       | $                                       | 10,174,255  |                       | $          | 7,445,011        |       | $           | —     |   | $ | 17,619,266 |   |
| Interdivision  receivables                    |       | —                    |       | (6,671,966                              | )           | 6,671,966                  |       | —           |       | —      |       |
| Inventories                                   |       | —                    |       | 17,571,267                              |        | 12,366,711                 |       | —           |       | 29,937,978  |       |
| Prepaid expenses  and other current assets    |       | —                    |       | 429,922                                 |        | 509,725                    |       | —           |       | 939,647     |       |
| Deferred income  taxes                        |       | —                    |       | 654,611                                 |        | —                     |       | —           |       | 654,611     |       |
| Total current  assets                         |       | 3,973                     |       | 22,158,089                              |        | 26,993,413                 |       | —           |       | 49,155,475  |       |
|                                          |       |                      |       |                                    |        |                       |       |             |       |        |       |
| Investments in  subsidiary guarantors         |       | 28,525,008                |       | 23,072,655                              |        | —                     |       | (51,597,663      | )          | —      |       |
| Property and  equipment, net                  |       | —                    |       | 42,055,215                              |        | 3,727,482                  |       | —           |       | 45,782,697  |       |
| Goodwill                                      |       | —                    |       | 77,573,207                              |        | —                     |       | —           |       | 77,573,207  |       |
| Intangible  assets, net                       |       | —                    |       | 12,627,500                              |        | 2,153,336                  |       | —           |       | 14,780,836  |       |
| Other noncurrent  assets                      |       | 1,894,736                 |       | 4,355,498                               |        | 164,472                    |       | —           |       | 6,414,706   |       |
| Total assets                                  |       | 30,423,717                |       | $                                       | 181,842,164 |                       | $          | 33,038,703       |       | (51,597,663 | )          | $ | 193,706,921 |   |
| **Liabilities  and Members’ Equity**     |       |                      |       |                                    |        |                       |       |             |       |        |       |
| Current  liabilities                          |       |                      |       |                                    |        |                       |       |             |       |        |       |
| Book overdraft                                |       | —                    |       | 4,393,333                               |        | 337,555                    |       | —           |       | 4,730,888   |       |
| Trade accounts  payable                       |       | —                    |       | 6,329,909                               |        | 7,582,832                  |       | —           |       | 13,912,741  |       |
| Accrued expenses                              |       | —                    |       | 3,557,806                               |        | 2,045,661                  |       | —           |       | 5,603,467   |       |
| Accrued interest                              |       | —                    |       | 6,305,990                               |        | —                     |       | —           |       | 6,305,990   |       |
| Taxes payable                                 |       | —                    |       | —                                  |        | —                     |       | —           |       | —      |       |
| Total current  liabilities                    |       | —                    |       | 20,587,038                              |        | 9,966,048                  |       | —           |       | 30,553,086  |       |
|                                          |       |                      |       |                                    |        |                       |       |             |       |        |       |
| Line of credit                                |       | —                    |       | 2,800,000                               |        | —                     |       | —           |       | 2,800,000   |       |
| Deferred income  taxes                        |       | —                    |       | 4,223,628                               |        | —                     |       | —           |       | 4,223,628   |       |
| Other liabilities                             |       | —                    |       | 706,490                                 |        | —                     |       | —           |       | 706,490     |       |
| Long-term debt,  excluding current maturities |       | 31,347,708                |       | 125,000,000                             |        | —                     |       | —           |       | 156,347,708 |       |
| Total liabilities                             |       | 31,347,708                |       | 153,317,156                             |        | 9,966,048                  |       | —           |       | 194,630,912 |       |
| Members’ equity                          |       |                      |       |                                    |        |                       |       |             |       |        |       |
| Members’ equity                          |       | 14,038,007                |       | —                                  |        | —                     |       | —           |       | 14,038,007  |       |
| Additional  paid-in capital                   |       | 275,264                   |       | 37,775,264                              |        | 26,624,729                 |       | (64,399,993      | )          | 275,264     |       |
| Retained  earnings/(deficit)                  |       | (15,237,262               | )          | (9,250,256                              | )           | (3,552,074                 | )          | 12,802,330       |       | (15,237,262 | )          |
| Total members’  equity/(deficit)         |       | (923,991                  | )          | 28,525,008                              |        | 23,072,655                 |       | (51,597,663      | )          | (923,991    | )          |
| Total liabilities  and members’ equity   |       | 30,423,717                |       | $                                       | 181,842,164 |                       | $          | 33,038,703       |       | (51,597,663 | )          | $ | 193,706,921 |   |
|                                               |            |                           |            |                                         |             |                            |            |                  |            |             |            |  |  |  |  |  |  |

 

13

----

 

Consolidatingstatement of operations for the thirteen weeks ended July 2, 2005(unaudited):

 
| ** **                                    | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|-----------------------------------------|------------|----------------------------|------------|------------------|------------|------------|------------|
| Net sales                                     |       | $                         | —     |                                    | $          | 18,231,232                 |       | $                | 33,627,700 |       | $          | (7,465,984 | ) | $ | 44,392,948 |   |
| Cost of sales                                 |       | —                    |       | 18,807,855                              |       | 25,076,559                 |       | (7,465,984       | )          | 36,418,430 |       |
| Gross profit  (loss)                          |       | —                    |       | (576,623                                | )          | 8,551,141                  |       | —           |       | 7,974,518  |       |
| Selling, general  and administrative expenses |       | 72,906                    |       | 3,269,144                               |       | 1,360,240                  |       | —           |       | 4,702,290  |       |
| Operating profit  (loss)                      |       | (72,906                   | )          | (3,845,767                              | )          | 7,190,901                  |       | —           |       | 3,272,228  |       |
| Other income  (expense)                       |       |                      |       |                                    |       |                       |       |             |       |       |       |
| Interest income                               |       | —                    |       | 4,163                                   |       | 60,990                     |       | —           |       | 65,153     |       |
| Interest expense                              |       | (1,021,547                | )          | (3,569,137                              | )          | —                     |       | —           |       | (4,590,684 | )          |
| Executive/administration  income (expense)    |       | —                    |       | 5,786,998                               |       | (5,786,998                 | )          | —           |       | —     |       |
| Other income  (expense), net                  |       | —                    |       | (95,337                                 | )          | (12,327                    | )          | —           |       | (107,664   | )          |
| Equity in  earnings of subsidiary guarantors  |       | (670,564                  | )          | 1,452,566                               |       | —                     |       | (782,002         | )          | —     |       |
| Total other  income (expense)                 |       | (1,692,111                | )          | 3,579,253                               |       | (5,738,335                 | )          | (782,002         | )          | (4,633,195 | )          |
| Income before  income taxes                   |       | (1,765,017                | )          | (266,514                                | )          | 1,452,566                  |       | (782,002         | )          | (1,360,967 | )          |
| Provision for income  taxes                   |       | —                    |       | 404,050                                 |       | —                     |       | —           |       | 404,050    |       |
| Net income (loss)                             |       | $                         | (1,765,017 | )                                       | $          | (670,564                   | )          | $                | 1,452,566  |       | $          | (782,002 | ) | $ | (1,765,017 | ) |

 

Consolidatingstatement of operations for the thirteen weeks ended July 1, 2006(unaudited):

 
| ** **                                    | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|-----------------------------------------|------------|----------------------------|------------|------------------|------------|------------|------------|
| Net sales                                     |       | $                         | —     |                                    | $          | 27,908,826                 |       | $                | 30,173,993 |       | $          | (5,359,891 | ) | $ | 52,722,928 |   |
| Cost of sales                                 |       | —                    |       | 28,289,244                              |       | 25,789,627                 |       | (5,359,891       | )          | 48,718,980 |       |
| Gross profit  (loss)                          |       | —                    |       | (380,418                                | )          | 4,384,366                  |       | —           |       | 4,003,948  |       |
| Selling, general  and administrative expenses |       | —                    |       | 6,771,330                               |       | 1,650,489                  |       | —           |       | 8,421,819  |       |
| Operating profit  (loss)                      |       | —                    |       | (7,151,748                              | )          | 2,733,877                  |       | —           |       | (4,417,871 | )          |
| Other income  (expense)                       |       |                      |       |                                    |       |                       |       |             |       |       |       |
| Interest income                               |       | —                    |       | 3,963                                   |       | (3,963                     | )          | —           |       | —     |       |
| Interest expense                              |       | (1,128,945                | )          | (3,582,239                              | )          | (1,751                     | )          | —           |       | (4,712,935 | )          |
| Executive/administration  income (expense)    |       | —                    |       | 4,707,899                               |       | (4,707,899                 | )          | —           |       | —     |       |
| Other income  (expense) net                   |       | —                    |       | (2,130                                  | )          | 1,619                      |       | —           |       | (511       | )          |
| Equity in  earnings of subsidiary guarantors  |       | (8,433,439                | )          | (1,978,117                              | )          | —                     |       | 10,411,556       |       | —     |       |
| Total other  income (expense)                 |       | (9,562,384                | )          | (850,624                                | )          | (4,711,994                 | )          | 10,411,556       |       | (4,713,446 | )          |
| Income before  income taxes                   |       | (9,562,384                | )          | (8,002,372                              | )          | (1,978,117                 | )          | 10,411,556       |       | (9,131,317 | )          |
| Provision for income  taxes                   |       | —                    |       | 486,795                                 |       | —                     |       | —           |       | 486,795    |       |
| Net income (loss)                             |       | $                         | (9,562,384 | )                                       | $          | (8,489,167                 | )          | $                | (1,978,117 | )          | $          | 10,411,556 |   | $ | (9,618,112 | ) |

 

14

----

 

Consolidatingstatement of operations for the twenty-six weeks ended July 2, 2005(unaudited):

 
| ** **                                                                                           | ** ** | **TWC Holding  LLC** | ** **  | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** **  | **Total**   | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------|-------------|-----------------------------------------|------------|----------------------------|------------|------------------|-------------|-------------|------------|
| Net sales                                                                                            |       | $                         | —      |                                    | $          | 40,749,223                 |       | $                | 82,595,537  |        | $          | (20,119,597 | ) | $ | 103,225,163 |   |
| Cost of sales                                                                                        |       | —                    |        | 41,238,078                              |       | 67,683,474                 |       | (20,119,597      | )           | 88,801,955  |       |
| Gross profit  (loss)                                                                                 |       | —                    |        | (488,855                                | )          | 14,912,063                 |       | —           |        | 14,423,208  |       |
| Selling, general  and administrative expenses                                                        |       | 72,906                    |        | 6,647,371                               |       | 2,834,263                  |       |             |        | 9,554,540   |       |
| Operating profit  (loss)                                                                             |       | (72,906                   | )           | (7,136,226                              | )          | 12,077,800                 |       | —           |        | 4,868,668   |       |
| Other income  (expense)                                                                              |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Interest income                                                                                      |       |                      |        | 10,578                                  |       | 88,356                     |       |             |        | 98,934      |       |
| Interest expense                                                                                     |       | (1,560,666                | )           | (7,142,960                              | )          | (94                        | )          |             |        | (8,703,720  | )          |
| Executive/administration  income (expense)                                                           |       | —                    |        | 9,881,150                               |       | (9,881,150                 | )          |             |        | —      |       |
| Other income  (expense), net                                                                         |       | —                    |        | (166,029                                | )          | 138,804                    |       |             |        | (27,225     | )          |
| Equity in  earnings of subsidiary guarantors                                                         |       | (3,089,941                | )           | 2,423,716                               |       | —                     |       | 666,225          |        | —      |       |
| Total other  income (expense)                                                                        |       | (4,650,607                | )           | 5,006,455                               |       | (9,654,084                 | )          | 666,225          |        | (8,632,011  | )          |
| Income (loss) before  income taxes                                                                   |       | (4,723,513                | )           | (2,129,771                              | )          | 2,423,716                  |       | 666,225          |        | (3,763,343  | )          |
| Provision for income  taxes                                                                          |       | —                    |        | 960,170                                 |       | —                     |       |             |        | 960,170     |       |
| Net income (loss)                                                                                    |       | $                         | (4,723,513  | )                                       | $          | (3,089,941                 | )          | $                | 2,423,716   |        | $          | 666,225 |   | $ | (4,723,513 | ) |
|                                                                                                 |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Consolidating statement of  operations for the twenty-six weeks ended July 1, 2006 (unaudited): |
|                                                                                                 |
| ** **                                                                                           | ** ** | **TWC Holding  LLC** | ** **  | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** **  | **Total**   | ** ** |
| Net sales                                                                                            |       | $                         | —      |                                    | $          | 54,536,945                 |       | $                | 80,516,265  |        | $          | (16,579,594 | ) | $ | 118,473,616 |   |
| Cost of sales                                                                                        |       | —                    |        | 55,345,723                              |       | 71,231,292                 |       | (16,579,594      | )           | 109,997,421 |       |
| Gross profit  (loss)                                                                                 |       | —                    |        | (808,778                                | )          | 9,284,973                  |       | —           |        | 8,476,195   |       |
| Selling, general  and administrative expenses                                                        |       | 4,270                     |        | 13,580,850                              |       | 2,848,001                  |       |             |        | 16,433,121  |       |
| Operating profit  (loss)                                                                             |       | (4,270                    | )           | (14,389,628                             | )          | 6,436,972                  |       | —           |        | (7,956,926  | )          |
| Other income  (expense)                                                                              |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Interest income                                                                                      |       | —                    |        | 18,572                                  |       | 44,797                     |       | —           |        | 63,369      |       |
| Interest expense                                                                                     |       | (2,189,829                | )           | (6,848,488                              | )          | (1,751                     | )          | —           |        | (9,040,068  | )          |
| Executive/administration  income (expense)                                                           |       | —                    |        | 21,707,899                              |       | (21,707,899                | )          | —           |        | —      |       |
| Other income  (expense), net                                                                         |       | —                    |        | (156,592                                | )          | 1,619                      |       | —           |        | (154,973    | )          |
| Equity in earnings  of subsidiary guarantors                                                         |       | (15,843,924               | )           | (15,226,262                             | )          | —                     |       | 31,070,186       |        | —      |       |
| Total other  income (expense)                                                                        |       | (18,033,753               | )           | (504,871                                | )          | (21,663,234                | )          | 31,070,186       |        | (9,131,672  | )          |
| Income (loss)  before income taxes                                                                   |       | (18,038,023               | )           | (14,894,499                             | )          | (15,226,262                | )          | 31,070,186       |        | (17,088,598 | )          |
| Provision for income  taxes                                                                          |       | —                    |        | 949,425                                 |       | —                     |       | —           |        | 949,425     |       |
| Net income (loss)                                                                                    |       | $                         | (18,038,023 | )                                       | $          | (15,843,924                | )          | $                | (15,226,262 | )           | $          | 31,070,186 |   | $ | (18,038,023 | ) |

 

15

----

 

Consolidatingstatement of cash flows for the twenty-six weeks ended July 2, 2005(unaudited):

 
| ** **                                                                                          | ** ** | **TWC Holding  LLC** | ** ** | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------------------------|------------|----------------------------|------------|------------------|------------|-------------|------------|
| **Cash  flows from operating activities**                                                           |       |                      |       |                                    |       |                       |       |             |       |        |       |
| Net (loss) income                                                                                   |       | $                         | (4,723,513 | )                                       | $          | (3,089,941                 | )          | $                | 2,423,716  |        | $          | 666,225 |   | $ | (4,723,513 | ) |
| Adjustments to  reconcile net (loss) income to net cash provided by (used in) operating  activities |       |                      |       |                                    |       |                       |       |             |       |        |       |
| Depreciation of  property and equipment                                                             |       | —                    |       | 1,258,680                               |       | 652,612                    |       | —           |       | 1,911,292   |       |
| Amortization of  intangibles and bond issuance cost                                                 |       | 147,728                   |       | 2,277,025                               |       | 411,667                    |       | —           |       | 2,836,420   |       |
| Equity in  earnings of subsidiary guarantors                                                        |       | 3,089,941                 |       | (2,423,716                              | )          | —                     |       | (666,225         | )          | —      |       |
| Deferred tax  liability                                                                             |       | —                    |       | 912,000                                 |       | —                     |       | —           |       | 912,000     |       |
| Compensation  expense for stock options                                                             |       | —                    |       | 9,983                                   |       | —                     |       | —           |       | 9,983       |       |
| Changes in assets  and liabilities                                                                  |       |                      |       |                                    |       |                       |       |             |       | —      |       |
| Trade accounts  receivable                                                                          |       | —                    |       | 219,486                                 |       | 1,803,697                  |       | —           |       | 2,023,183   |       |
| Interdivisional  receivables/payables, net                                                          |       | —                    |       | 4,720,661                               |       | (4,720,661                 | )          | —           |       | —      |       |
| Inventories                                                                                         |       | —                    |       | (937,878                                | )          | 3,787,612                  |       | —           |       | 2,849,734   |       |
| Prepaid expenses  and other current assets                                                          |       | (29,667                   | )          | (212,798                                | )          | (176,678                   | )          | —           |       | (419,143    | )          |
| Other noncurrent  asset                                                                             |       | —                    |       | (24,074                                 | )          | (14,551                    | )          | —           |       | (38,625     | )          |
| Trade accounts payable  and accrued expenses                                                        |       | 371,593                   |       | 1,346,958                               |       | (827,519                   | )          | —           |       | 891,032     |       |
| Payment-in-kind interest                                                                            |       | 1,412,958                 |       | (566,406                                | )          | —                     |       | —           |       | 846,552     |       |
| Taxes payable                                                                                       |       | —                    |       | (51,950                                 | )          | —                     |       | —           |       | (51,950     | )          |
| Net cash provided  by operating activities                                                          |       | 269,040                   |       | 3,438,030                               |       | 3,339,895                  |       | —           |       | 7,046,965   |       |
| **Cash  flows from investing activities**                                                           |       |                      |       |                                    |       |                       |       |             |       |        |       |
| Capital  expenditures                                                                               |       | —                    |       | (7,010,359                              | )          | (175,325                   | )          | —           |       | (7,185,684  | )          |
| Net cash used in  investing activities                                                              |       | —                    |       | (7,010,359                              | )          | (175,325                   | )          | —           |       | (7,185,684  | )          |
| **Cash  flows from financing activities**                                                           |       |                      |       |                                    |       |                       |       |             |       |        |       |
| Capitalized bond  issuance cost                                                                     |       | (2,590,612                | )          | —                                  |       | —                     |       | —           |       | (2,590,612  | )          |
| Proceeds from  issuance of Senior PIK Notes                                                         |       | 26,000,000                |       | —                                  |       | —                     |       | —           |       | 26,000,000  |       |
| Return of Capital  payments                                                                         |       | (23,461,993               | )          | —                                  |       | —                     |       | —           |       | (23,461,993 | )          |
| Net cash used-in  financing activities                                                              |       | (52,605                   | )          | —                                  |       | —                     |       | —           |       | (52,605     | )          |
| Net increase  (decrease) in cash and cash equivalents                                               |       | 216,435                   |       | (3,572,329                              | )          | 3,164,570                  |       | —           |       | $           | (191,324   | ) |
| **Cash and  cash equivalents**                                                                      |       |                      |       |                                    |       |                       |       |             |       |        |       |
| Beginning of  period                                                                                |       | —                    |       | 1,085,474                               |       | 2,203,556                  |       | —           |       | 3,289,030   |       |
| End of period                                                                                       |       | $                         | 216,435    |                                    | $          | (2,486,855                 | )          | $                | 5,368,126  |        | $          | — |   | $ | 3,097,706 |   |
|                                                                                                     |            |                           |            |                                         |            |                            |            |                  |            |             |            |  |  |  |  |  |  |  |  |  |

 

16

----

 

Consolidatingstatement of cash flows for the twenty-six weeks ended July 1, 2006(unaudited):

 
| ** **                                                                                          | ** ** | **TWC Holding  LLC** | ** **  | **The Wornick  Company  Delaware** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** **  | **Total**   | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------|-------------|-----------------------------------------|------------|----------------------------|------------|------------------|-------------|-------------|------------|
| **Cash  flows from operating activities**                                                           | ** ** | ** **                | ** **  | ** **                              | ** ** | ** **                 | ** ** | ** **       | ** **  | ** **  | ** ** |
| Net (loss) income                                                                                   |       | $                         | (18,038,023 | )                                       | $          | (15,843,924                | )          | $                | (15,226,262 | )           | $          | 31,070,186 |   | $ | (18,038,023 | ) |
| Adjustments to  reconcile net (loss) income to net cash provided by (used in) operating  activities |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Equity in  earnings of subsidiary guarantors                                                        |       | 15,843,924                |        | 15,226,262                              |       | —                     |       | (31,070,186      | )           | —      |       |
| Depreciation of  property and equipment                                                             |       | —                    |        | 1,721,349                               |       | 2,348,509                  |       | —           |        | 4,069,858   |       |
| Amortization of  intangibles and bond issuance cost                                                 |       | 177,628                   |        | 1,958,656                               |       | 411,666                    |       | —           |        | 2,547,950   |       |
| Fixed asset  transfers                                                                              |       | —                    |        | (91,230                                 | )          | 91,230                     |       | —           |        | —      |       |
| Deferred tax  asset                                                                                 |       | —                    |        | 748,424                                 |       | —                     |       | —           |        | 748,424     |       |
| Deferred tax  liability                                                                             |       |                      |        | 201,001                                 |       |                       |       |             |        | 201,001     |       |
| Payment-in-kind  interest                                                                           |       | 1,834,573                 |        | —                                  |       | —                     |       | —           |        | 1,834,573   |       |
| Compensation  expense for stock options                                                             |       | —                    |        | 42,584                                  |       | —                     |       | —           |        | 42,584      |       |
| Changes in assets  and liabilities                                                                  |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Trade accounts  receivable                                                                          |       | —                    |        | (5,282,406                              | )          | 6,849,953                  |       | —           |        | 1,567,547   |       |
| Interdivisional  receivables/payables, net                                                          |       | —                    |        | 10,456,269                              |       | (10,456,269                | )          | —           |        | —      |       |
| Inventories                                                                                         |       | —                    |        | (5,527,508                              | )          | 3,543,826                  |       | —           |        | (1,983,682  | )          |
| Prepaid expenses  and other current assets                                                          |       | 4,270                     |        | (195,618                                | )          | (118,053                   | )          | —           |        | (309,401    | )          |
| Other noncurrent  asset                                                                             |       | 275,228                   |        | 522,337                                 |       | 5,465                      |       | —           |        | 803,030     |       |
| Trade accounts  payable and accrued expenses                                                        |       | (97,600                   | )           | (4,112,646                              | )          | (4,505,366                 | )          | —           |        | (8,715,612  | )          |
| Book overdraft                                                                                      |       |                      |        | 4,393,333                               |       | 337,555                    |       |             |        | 4,730,888   |       |
| Accrued interest                                                                                    |       | —                    |        | 29,094                                  |       | —                     |       | —           |        | 29,094      |       |
| Taxes payable                                                                                       |       | —                    |        | (977,237                                | )          | —                     |       | —           |        | (977,237    | )          |
| Other liabilities                                                                                   |       | —                    |        | 272,642                                 |       | —                     |       | —           |        | 272,642     |       |
| Net cash provided  by (used in) operating activities                                                |       | —                    |        | 3,541,382                               |       | (16,717,746                | )          | —           |        | (13,176,364 | )          |
| **Cash  flows from investing activities**                                                           |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Capital  expenditures                                                                               |       |                      |        | (6,850,558                              | )          | (103,839                   | )          |             |        | (6,954,397  | )          |
| Net cash used in  investing activities                                                              |       | —                    |        | (6,850,558                              | )          | (103,839                   | )          | —           |        | (6,954,397  | )          |
| **Cash  flows from financing activities**                                                           |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Borrowings on  line of credit                                                                       |       | —                    |        | 9,500,000                               |       | —                     |       |             |        | 9,500,000   |       |
| Payments on line  of credit                                                                         |       |                      |        | (6,700,000                              | )          | —                     |       |             |        | (6,700,000  | )          |
| Net cash provided  by financing activities                                                          |       | —                    |        | 2,800,000                               |       | —                     |       | —           |        | 2,800,000   |       |
| Net decrease in  cash and cash equivalents                                                          |       | —                    |        | (509,176                                | )          | (16,821,585                | )          | —           |        | (17,330,761 | )          |
| **Cash and  cash equivalents**                                                                      |       |                      |        |                                    |       |                       |       |             |        |        |       |
| Beginning of  period                                                                                |       | 3,973                     |        | 509,176                                 |       | 16,821,585                 |       | —           |        | 17,334,734  |       |
| End of period                                                                                       |       | $                         | 3,973       |                                    | $          | —                     |       | $                | —      |        | $          | — |   | $ | 3,973 |   |

 

17

----

 

**Item 2.   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Our Company**

 

Weare the leading supplier of individual and group military field rations to theDoD. We specialize in the production, packaging and distribution of extendedshelf-life, shelf stable and frozen foods in flexible pouches and semi-rigidcontainers. With over 30 years of experience in the food manufacturing and foodprocessing businesses, we believe we have a reputation for superior quality andservice in developing and producing unique meal solutions for the military andfor the consumer and foodservice markets. We are a primary supplier to the DoDof Meals Ready-to-Eat (the “MREs”), Unitized Group Rations-A (the “UGR-As”) andthe polymeric trays (the “Tray-Pack”) used in the Unitized GroupRations-Heat & Serve program. Our customers also include KraftFoods, Inc. (“Kraft”), Gerber Products Company (“Gerber”), The Quaker OatsCompany (“Quaker”), Delmonte Food Company (“Delmonte”) and the Canadian Ministryof Defense.

 

Through our co-manufacturing program, which began in1998, we manufacture a variety of extended shelf-life products for leadingbranded food companies, including Delmonte, Gerber, Keefe, Kraft, Quaker andother co-manufacturing customers. These products are marketed and sold by ourcustomers into their retail and foodservice channels under nationallyrecognized brands. We target branded companies that are leaders in theirrespective categories and have products that align well with our corecompetencies in heat seal and thermostabilized products. Many of these productsrequire us to use a combination of our existing manufacturing equipment andnewly purchased equipment, the cost of which is partially borne by ourcontracted co-manufacturing customers. Our co-manufacturing program utilizesmany of the technologies and processes that we have developed for our militarybusiness.

 

OnMarch 30, 2006, we were notified by the Defense Supply Center Philadelphia (the“DSCP”) that the Company had been awarded a 25% share level in the MRE-26-to-30DoD contract that runs from fiscal 2006 through 2010. Most recently, our shareof similar MRE contracts has been 35%. While this share level is slightly belowhistorical levels, we do not anticipate that it will have a significant impacton our results of operations or cash flows, because we expect increasedrevenues during fiscal 2006-2010 from other military-type contracts and fromother co-manufacturing and branded businesses.

 

On June 6, 2006, The WornickCompany, a Delaware Corporation, entered into a series of agreements withAdvocacy and Resources Corporation, a Tennessee Not-For-Profit Corporation (“AARC”),and it’s affiliate ARC Diversified, Inc., also a Tennessee Not-For-ProfitCorporation (“ARCDI” and collectively, “AARC”). In the agreement, AARC agreedto transfer its rights and obligations under its existing UGR-A contract #SPM300-04-D-Z215 with the DSCP. In exchange for these rights, Wornick executedan exclusive service agreement with AARC whereby AARC agreed to provide UGR-Aassembly services to Wornick on a fixed fee basis. These agreements are subjectto pending approval by the DSCP. Since the execution of these agreements, AARChas filed for bankruptcy, and therefore, we do not anticipate that theseagreements will generate additional UGR-A CONUS (Continental United States)revenues.

 

**Restructuring**

 

OnFebruary 6, 2006, the Operating Company announced plans to relocate theassembly operations of its Right Away Division in McAllen, Texas to the Company’sCincinnati, Ohio location in order to better position the Company’s productionand assembly operations from a geographical standpoint, simplify logistics andreduce cost and delivery times to customers. The Company anticipates that itsconsolidation will be completed at the end of the third quarter of 2006.

 

TheCompany anticipates that the total pretax charges incurred to complete therestructuring will be approximately $4.1 million. Of the $4.1 million,$1.3 million will be paid out to the 244 employees (under pay-to-stayseverance arrangements) currently located at the McAllen, Texas assemblyfacilities. We anticipate that all of these employees will be terminated uponcompletion of the consolidation. The remaining expenses are related to accelerateddepreciation on property and equipment of approximately $2.8 million,which the Company anticipates will be abandoned upon its exit from the McAllenfacilities.

 

Duringthe thirteen weeks and twenty-six weeks ended July 1, 2006, the Companyrecorded total pretax charges of $1,546,946, and $2,733,031, respectively, allof which was recorded in the RAD segment. Of the $1,546,946 and $2,733,031 inpretax charges, $530,207 and $883,678 were included in selling, general andadministrative expenses, during the thirteen and twenty-six weeks ended July 1,2006, respectively.

 

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Thesecosts were incurred with regard to employee pay-to-stay severance arrangements,none of whom had been terminated as of July 1, 2006, and $1,016,739 and $1,849,353 for the thirteen andtwenty-six weeks ended July 1, 2006, respectively, were related to accelerateddepreciation on assets to be abandoned included in cost of sales. We anticipatethat the majority of the remaining liabilities incurred will occur during thethird quarter of 2006 and will be settled during the same time period withfunds from operations and temporary borrowings against our working line ofcapital. For more information related to our restructuring liabilities, seeNote 3 in our unaudited consolidated financial statements for a reconciliationof liabilities at July 1, 2006.

 

**Results of Operations**

 

The amounts provided below havebeen rounded and are therefore approximates that may or may not fully agree withthe information provided in the financial statements.

** **

**Comparison of the thirteen weeks ended July 1, 2006 tothe thirteen weeks ended July 2, 2005**

 

***Net Sales*****.**  Our netsales for the thirteen weeks ended July 1, 2006 were $52.7 million, anincrease of approximately $8.3 million, or 18.8%, compared to net sales of$44.4 million for the thirteen weeks ended July 2, 2005. The increase innet sales resulted from (i) increased co-manufacturing sales ofapproximately $13.1 million, which was offset by (ii) (a) decreased salesto our other co-manufacturing customers and decreased branded product sales of$0.3 million and (b) decreased military sales of approximately $4.5million to the DoD. The $4.5 million decrease in military sales consisted of a$6.0 million decrease in MRE sales and a $0.6 million decrease in othermilitary sales (primarily Tray-Pack sales), offset by a $2.1 million increasein UGR-A sales. The significant increase in co-manufacturing sales of $13.1million was attributable to an increase of $6.5 million in new businessinitiatives with a new co-manufacturing customer, NutriSystem, Inc., at the endof fiscal year 2005 that did not exist during the first twenty-six weeks of2005 and to an increase in sales to existing co-manufacturing customers ofapproximately $6.6 million, of which $2.1 million, $3.6 million and $0.6million, $0.3 million, respectively, are attributable to increased Kraft sales,increased Gerber sales, increased Quaker sales and net other co-manufacturing.

 

***Gross Profit.***  Our gross profit for the thirteenweeks ended July 1, 2006 was $4.0 million, a decrease of approximately $4.0million, or 50%, compared to gross profit of $8.0 million for the thirteenweeks ended July 2, 2005. As a percentage of net sales, our gross profit was7.6% and 18.0% for the thirteen weeks ended July 1, 2006 and July 2, 2005,respectively.  Gross profit was unfavorably impacted by accelerateddepreciation of approximately $1.0 million of the McAllen facilities due to theconsolidation, unfavorable production variances of approximately $1.6 million,of which $1.4 million is related to our co-manufacturing business and $0.2million related to our branded products business. Of the $1.4 millionco-manufacturing production variances, approximately $1.0 million was relatedto our start-up inefficiencies on the Gerber line that were resolved during thesecond quarter and to our labor inefficiencies on our other co-manufacturinglines of business. The remaining decrease in gross profit was attributable todecreased contribution margin earned on sales of MREs to the DoD ofapproximately $1.7 million due to the lower price earned on MRE-25 surge ordersduring the second quarter of fiscal 2006 as compared to MRE-25 base pricingduring the second quarter of fiscal 2005. This decrease in contribution marginearned on DoD MRE sales was partially offset by co-manufacturing shipments dueto higher volumes.

 

***Selling, General and Administrative Expenses.***  Our selling, general andadministrative expenses for the thirteen weeks ended July 1, 2006 were $8.4million, representing an increase of approximately $3.8 million, or82%, compared to selling, general and administrative expenses of $4.7million for the thirteen weeks ended July 2, 2005.  This increase was theresult of (i) approximately $530,000 in severance expenses for employeepay-to-stay severance arrangements associated with the shutdown of our McAllen,Texas assembly facilities; (ii) approximately $1.1 million inemployee-related expenditures for salary, wages and benefits associated withour new corporate facility in Cincinnati, Ohio; (iii) approximately$241,000 in severance expenses for corporate employees following theirtermination; (iv) approximately $1.1 million in one-time expenditures forour on-going corporate consolidation projects and for consulting andprofessional services; and (v) approximately $684,000 in travel andrelated expenditures primarily in support of our new product initiatives and the consolidation of our McAllenassembly facilities.

 

***Operating Profit (Loss)***.   For the thirteen weeks endedJuly 1, 2006, we incurred an operating loss of approximately $4.4 million, adecrease of $7.8 million compared to our operating profit of $3.3 million forthe thirteen weeks ended July 2, 2005.

 

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***Interest Expense.***  Our interest expense for the thirteenweeks ended July 1, 2006 was approximately $4.7 million, representing anincrease of approximately $122,000 compared to interest expense ofapproximately $4.6 million for the thirteen weeks ended July 2, 2005. Theincrease in interest expense resulted primarily from a full twenty-six weeks ofinterest expense for the period ended July 1, 2006 as compared to approximatelytwenty-one weeks of interest expense incurred for the twenty-six weeks endedJuly 1, 2005 on our Senior PIK Notes.

 

***Interest Income.***  Our interest income for the thirteenweeks ended July 1, 2006 was $0, representing a decrease of approximately$65,000 compared to interest income of approximately $65,000 for the thirteenweeks ended July 2, 2005. The decrease in interest income is due to loweraverage daily balances in fiscal 2006 in support of on-going project andcapital expenses and inventory builds to support new customer initiatives.

 

***Other Expense, Net.***  Our other expense, net for thethirteen weeks ended July 1, 2006 was approximately $500, representing adecrease of expenses of approximately $107,000 compared to other expense, netof approximately $108,000 for the thirteen weeks ended July 2, 2005. Thedecrease in other expense, net is primarily attributable to expenses incurredin fiscal 2005 that did not recur in 2006.

 

***Provision for Income Taxes.***  Expenses related to federal, state andlocal taxes for the thirteen weeks ended July 1, 2006 was approximately$487,000 compared to approximately $404,000 for the thirteen weeks ended July2, 2005.   No tax benefit has beenrecognized associated with the operating losses as management believes that it ismore likely than not that these tax benefits will not be realized based on theexisting uncertainty whether the Company will generate future taxable incomedue to ongoing additional tax deductions related to goodwill amortization. Assuch, we have recorded approximately $463,000 of additional valuation allowanceon net deferred tax assets associated with the indefinite reversal periodrelated to goodwill amortization.

 

***Net Loss.***  As a result of the foregoing, weincurred a net loss of approximately $9.6 million for the thirteen weeks endedJuly 1, 2006, a decrease in net income of approximately $7.9 million comparedto net loss of approximately $1.8 million in the thirteen weeks ended July 2,2005.

 

**Comparison of the twenty-six weeks ended July 1, 2006to the twenty-six weeks ended July 2, 2005**

 

***Net Sales.***  Our net sales for the twenty-six weeksended July 1, 2006 were $118.5 million, an increase of approximately $15.3million, or 14.8%, compared to net sales of $103.2 million for the twenty-sixweeks ended July 2, 2005. The increase in net sales resulted primarily from(i) decreased net sales to the DoD of approximately $4.0 million, whichconsisted of a $3.8 million increase in UGR-A sales, a $6.7 million decrease inMRE sales and a $1.1 million decrease in other military sales, and(ii) increased co-manufacturing net sales of approximately $19.3 million,of which approximately $9.0 million was attributable to increased sales volumesto existing co-manufacturing customers while $10.3 million was attributable tonew co-manufacturing projects, including an $8.8 million NutriSystem projectand a $1.5 million Delmonte soup bowls project, both of which began in thesecond half of fiscal 2005. The remaining change in our sales for thetwenty-six weeks is related to minor changes in our branded other product saleswhich were immaterial for the period ended July 1, 2006. During the firstquarter of fiscal 2006, Delmonte announced the sale of its soup bowl line to athird party and during the second quarter of 2006, we were notified by thesubsequent third party that it intended to produce the soup bowl lineinternally. We have since stopped production and sales of the soup bowlproducts to either party and do not anticipate any significant liabilities arisingfrom the discontinuance of this product.

 

***Gross Profit*.** Ourgross profit for the twenty-six weeks ended July 1, 2006 was $8.5 million,representing a decrease of approximately $5.9 million, or 41.2%, compared togross profit of $14.4 million for the twenty-six weeks ended July 2, 2005,respectively.  As a percentage of netsales, our gross profit was 7.2% and 14.0% for the twenty-six weeks ended July1, 2006 and July 2, 2005, respectively. The decrease in gross profit was caused primarily by (i) a decrease ingross profit on sales to the DoD by approximately 19.1%, or $4.5 million and(ii) an increase in unfavorable production variances on our co-manufacturinglines of approximately $1.5 million.  The$4.5 million decrease in gross profit from the DoD was attributable to $1.8million in accelerated depreciation expense on those fixed assets that weintend to abandon upon the completion of the McAllen consolidation. Theremaining $2.7 million decrease in DoD gross profit is directly attributable tolost gross profit on sales of MREs to the DoD of approximately $2.1 millionrelated to lower volumes and sales prices and approximately $632,000 related tolower margins on UGR-A OCONUS sales.  The$1.5 million in unfavorable production variances, of which approximately $1.2million was related to our Gerber line’s start-up inefficiencies, was largelyresolved during the second quarter of fiscal 2006, and approximately $300,000related to labor and price inefficiencies on our other co-manufacturing lines.

 

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***Selling, General and Administrative Expenses.***  Our selling, general andadministrative expenses for the twenty-six weeks ended July 1, 2006 were $16.4million, an increase of $6.9 million, or 73.3%, compared to selling, generaland administrative expenses of approximately $9.6 million for the twenty-sixweeks ended July 2, 2005.  Our selling, general and administrativeexpenses increased over the prior period due to additional (i) severancecosts of approximately $884,000 for employee pay-to-stay severance arrangementsassociated with our McAllen facilities; (ii) employee-related costs of$3.3 million for increased headcount, salary, wages and benefits; (iii)severance and employee recruiting costs of approximately $402,000;(iv) research and development, and increased travel primarily in supportof product initiatives and related to the McAllen consolidation ofapproximately $1.3 million; and(v) consulting and professionalfees of approximately $1.1 million for project initiatives and consolidationefforts.

 

***Operating Profit.***  Our loss from operations wasapproximately $8.0 million for the twenty-six weeks ended July 1, 2006, adecrease of approximately $12.9 million compared to operating profit ofapproximately $4.9 million for the twenty-six weeks ended July 2, 2005.

 

***Interest Expense.***  Our interest expense for thetwenty-six weeks ended July 1, 2006 was approximately $9.0 million,representing an increase of approximately $336,000, compared to interestexpense of approximately $8.7 million for the twenty-six weeks ended July 2,2005. The increase is due primarily to additional interest expense incurred onadditional issuances of our Senior PIK Notes.

 

***Interest Income.***  Our interest income for the twenty-sixweeks ended July 1, 2006 was approximately $63,000, a decrease of approximately$36,000 compared to interest income of approximately $99,000 for the twenty-sixweeks ended July 2, 2005. The decrease in interest income is due to higherinterest earned on average daily balances maintained in fiscal 2005 as comparedto fiscal 2006.

 

***Other Expense, Net.***  Our other expense, net for thetwenty-six weeks ended July 1, 2006 was approximately $155,000, representing anincrease of approximately $128,000, compared to other expense. of $27,000 forthe twenty-six weeks ended July 2, 2005. The increase in other expense, net isattributable to no value engineering income being earned in fiscal 2006 ascompared to fiscal 2005.

 

***Provision for Income Taxes.***  Expenses related to federal, state andlocal taxes for the twenty-six weeks ended July 1, 2006 were approximately$949,000 compared to approximately $960,000 for the twenty-six weeks ended July2, 2005. No tax benefit has been recognized associated with the operatinglosses as management believes that it is more likely than not that these taxbenefits will not be realized based on the existing uncertainty whether theCompany will generate future taxable income due to ongoing additional taxdeductions related to goodwill amortization. As such, we have recordedapproximately $949,000 of additional valuation allowance on net deferred taxassets associated with the indefinite reversal period related to goodwillamortization. The remaining difference is related to state franchise taxesrecorded in the prior year that did not recur during fiscal 2006.

 

***Net Loss.**** *As a result of the foregoing, we incurred anet loss of approximately $18.0 million for the twenty-six weeks ended July 1,2006, an increase in net loss of approximately $13.3 million compared to netloss of approximately $4.7 million for the twenty-six weeks ended July 2, 2005.

 

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**Operating Segment Results**

 

**Comparison of the thirteen weeks ended July 1, 2006 tothe thirteen weeks ended July 2, 2005**

 

***Net Sales*. **Net sales for our RAD segment for the thirteen weeks ended July 1,2006 decreased by approximately $3.5 million compared to the thirteen weeksended July 2, 2005 primarily due to a decrease in sales to the DoD.  This decrease resulted from a $6.0 milliondecrease in MRE sales, which was offset by a $2.1 million increase in UGR-Asales and an approximately $400,000 increase in military other and othersales.  

 

Net sales for our PFD segmentfor the thirteen weeks ended July 1, 2006 increased approximately $11.8 millioncompared to the thirteen weeks ended July 2, 2005 primarily due to an increasein co-manufacturing sales of approximately $13.1 million, which was offset byapproximately $1.5 million in decreased DoD sales for the PFD segment relatedto the delay in the DoD Tray-Pack award. The remaining difference is due to immaterial increases in other brandedproduct sales.  (This PFD segment netsales increase of $11.8 million excludes inter-segment sales of approximately$5.4 million for the thirteen weeks ended July 1, 2006 and $7.5 million for thethirteen weeks ended July 2, 2005.)

 

***Operating Profit.*** Profit from operations for our RAD segment for the thirteen weeks endedJuly 1, 2006 decreased by approximately $4.5 million compared to the thirteenweeks ended July 2, 2005.  Included inthe decreased operating profit are restructuring charges of approximately $1.5million related to pay-to-stay severance arrangements and accelerateddepreciation, as discussed in Note 3 to the unaudited consolidated financialstatements.  The remaining decrease isattributable to decreased margins earned on MRE-25 surge contract pricing inthe second quarter of 2006 as compared to MRE-25 base contract pricing in thesecond quarter of 2005.

 

Profit from operations for our PFD segment for the thirteen weeks endedJuly 1, 2006 increased $2.9 million compared to the thirteen weeks ended July2, 2005 due to the transfer of all selling, general and administrative expensesto our corporate headquarters.  At the grossprofit level, our PFD segment decreased approximately $300,000 because ofco-manufacturing production inefficiencies previously discussed, which wereoffset by the increased sales volumes.

 

**Comparison of the twenty-six week ended July 1, 2006to the twenty-six weeks ended July 2, 2005**

 

***Net Sales.***Net sales for the RAD segment for thetwenty-six weeks ended July 1, 2006 decreased by $2.1 million compared to thetwenty-six weeks ended July 2, 2005 because of decreased sales to the DoD. This$2.1 million decrease resulted from a $6.7 million decrease in MRE sales and an$800,000 decrease in other military sales, which were offset by a $3.8 millionincrease in UGR-A sales.

 

Netsales for the PFD segment for the twenty-six weeks ended July 1, 2006 increasedapproximately $17.3 million compared to the twenty-six weeks ended July 2, 2005due to an increase in co-manufacturing net sales of approximately $19.3 million,which was offset by approximately $2.0 million in decreased branded and traypack sales. (This PFD segment net sales increase of $17.3 million excludesinter-segment sales of approximately $16.6 million for the twenty-six weeksended July 1, 2006 and $20.1 million for the twenty-six weeks ended July 2,2005.)

 

***Operating Profit.***  Profit from operations decreased byapproximately $5.6 million for the RAD segment for the twenty-six weeks endedJuly 1,2006 compared to the twenty-six weeks ended July 2, 2005. This decreasein profit from operations was primarily the result of approximately $1.9 millionin accelerated depreciation expenses related to our decision to relocate ourassembly operations from McAllen, Texas to Cincinnati, Ohio and approximately$884,000 in expenses related to pay-to-stay severance arrangements. Theremaining decrease was due to lower prices earned on MRE-25 surge orders, thelower prices of which occurred in the first five months of fiscal 2006, coupledwith the delay in shipments of MRE-26 base contracts. 

 

Profitfrom operations increased by approximately $4.4 million for the PFD segment forthe twenty-six weeks ended July 1, 2006 compared to the twenty-six weeks endedJuly 2, 2005. The increase in operating profit was primarily attributable toselling, general and administrative expenses that are now being recorded at thecorporate facility. These selling, general and administrative expenses areconsolidated for presentation in our financial statements but are segregated inNote 9 to the unaudited consolidated financial statements. Gross profitdecreased approximately $183,000 largely because of $1.2 million in

 

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productioninefficiencies related to the start-up of our new Gerber line and furtherimpacted by the $509,000 in spare parts expense, which were offset by higherco-manufacturing sales volumes.

 

**Liquidity and Capital Resources**

 

Thefollowing table summarizes our net cash provided by or (used in) our operatingactivities, investing activities and financing activities and our capitalexpenditures for twenty-six weeks ended July 1, 2006 and July 2, 2005:

 
| ** **                      | ** ** | **26 Week**           | ** ** | **26 Week**           | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **Period Ended**      | ** ** | **Period Ended**      | ** ** |
| ** **                      | ** ** | **July 2, 2005** | ** ** | **July 1, 2006** | ** ** |
| Net cash provided by (used-in): |       |                       |       |                       |       |
| Operating activities            |       | $                          | 7,046,965  |                       | $          | (13,176,364 | ) |
| Investing activities            |       | (7,185,684                 | )          | (6,954,397                 | )          |
| Financing activities            |       | (52,605                    | )          | 2,800,000                  |       |
| Capital expenditures            |       | (7,185,684                 | )          | (6,954,397                 | )          |
|                                 |            |                            |            |                            |            |  |  |

 

***Operating Activities*****.**Net cash (used-in) provided by (used in)operating activities was approximately ($13.2) million and $7.0 million for thetwenty-six weeks ended July 1, 2006 and July 2, 2005, respectively. Cashgenerated from operating activities decreased during the first twenty-six weeksof 2006 as compared to 2005 due primarily to payments made against outstandingcurrent trade accounts payable, taxes and acquisition of inventory of approximately$8.7 million resulting from increased first quarter 2006 working capitalrequirements, income taxes payments of approximately $1.0 million and inventorypurchases due to new customer initiatives and inventory build related to ourrestructuring efforts in Texas of approximately $2.0 million and furtherimpacted by lower margins on product mix and production inefficiencies relatedto start-up efforts on the Gerber line.

 

***Investing Activities*****.**Net cash used in investing activities wasapproximately $7.0 million and $7.2 million for the twenty-six weeks ended July1, 2006 and July 2, 2005, respectively and primarily attributable to capitalexpenditures in support of additional capacity and improvement of both militaryand co-manufacturing lines as well as infrastructure.

 

***Financing Activities***.   Net cash provided by (used in)financing activities was approximately $2.8 million and ($53,000) for thetwenty-six weeks ended July 1, 2006 and July 2, 2005, respectively. Sources offinancing were obtained from $2.8 million of borrowing on our Revolving line ofcredit. Fiscal 2005 activity was restricted to cash used in obtaining ourSenior PIK Notes.

 

Asof August 12, 2006, we had outstanding borrowings of $12.0 million against ourRevolving Loan Agreement. Significant uses of cash during the second quarter of2006 and the first two weeks of August 2006 included interest payment on theSenior Secured Notes of approximately $6.8 million, purchases with anassociated material cost of approximately $12.5 million to support UGR-A salesorders that shipped in the first two weeks of August, build out of our newassembly facilities located adjacent to our manufacturing facility inCincinnati, Ohio of approximately $5.0 million and inventory builds primarilyin support of our new Eversafe product and MRE component parts of approximately$6.0 million.

 

Ourcurrent cash flow and financial statement forecast for the remainder of fiscal2006 suggest that we will have repaid all borrowings against the Revolving LoanAgreement during November of 2006 and will remain cash positive for theremainder of fiscal 2006. However, this same financial forecast also suggeststhat it is possible we could violate one or more of the financial covenantsgoverning our borrowing arrangements, and through the inter-creditor agreement,our Senior Secured Notes.

 

Inthe event of a violation of one or more of our financial covenants, we would seekto resolve the issue either by satisfying the covenant within the allottedperiod or by obtaining the appropriate waivers. If we were unable to mitigatethe covenant violation within the allotted period or unable to obtain

 

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thewaivers, the Senior Secured Notes and amounts outstanding under the RevolvingLoan Agreement would become payable.

 

**Long-Term Debt Expenditures.**In connection with the Operating Company’s $125 million in SeniorSecured Notes and working capital facility, we will continue to incursignificant debt service payments including interest in future years. Totalcash interest payments related to the $125 million Senior Secured Notes will beapproximately $13.6 million on an annual basis. The Operating Companyincurred approximately $6.9 million of interest expense (including bondamortization cost) relating to the Senior Secured Notes and our working capitalfacilities in the twenty-six week period ended July 1, 2006. To the extent wehave borrowings outstanding under our working capital facility, we will haveadditional cash interest payments. Our borrowings and interest expense for thetwenty-six weeks ended July 1, 2006 against our working capital facility was $2.8million and $17,307 at July 1, 2006, respectively.

 

Theindenture governing the Senior Secured Notes, and working capital facility, imposesignificant operating and financial restrictions on Wornick. 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, the workingcapital facility requires Wornick to meet certain financial ratios andfinancial condition tests. At July 1, 2006, we were in compliance with allcovenants related to the Senior Secured Notes, Revolving Loan Agreement and ourSenior PIK notes.

 

OnFebruary 11, 2005 TWC Holding LLC and our  wholly-owned financesubsidiary, TWC Holding Corp., co-issued our 13.875% Senior PIK Notes due 2011,or the “Senior PIK Notes,” in the approximate aggregate principal amount of$62,259,000 net of a discount of approximately $36,259,000. The Senior PIKNotes earn interest at the rate of 13.875% per annum, mature on August 15,2011 and are unsecured obligations of TWC Holding LLC and TWC Holding Corp.Neither the Operating Company nor any of its subsidiaries guaranteed the SeniorPIK notes. The notes limit our ability to incur additional indebtedness and paydividends or make other distributions as well as to make certain investmentsand sell certain assets or merge with or into other companies. Because we are aholding company with no operations and only have our  investment in theOperating Company and because TWC Holding Corp. has no independent operationsor assets, future cash flows or assets of the Operating  Company through2011 may be required to service the $62.3 million Senior PIK notes, upon theirmaturity. During the first twenty-six weeks of fiscal 2006 we incurredapproximately $2.2 million in interest expense and bond cost amortizationrelated to the Senior PIK Notes.

 

Weexpect our remaining capital expenditures in 2006 to be approximately $9.0 million,primarily related to support plant renewal and consolidations, efficiencyimprovements and expansion of our co-manufacturing business.

 

Ourprincipal sources of liquidity are cash flow generated from operations andborrowings under the working capital facility. As of July 1, 2006, we hadborrowings of $2.8 million under The Revolving Loan Agreement.  Inaddition to fluctuations in business volume, cash flows from operations areaffected by contract terms for billing and collection. Our liquidity will alsocontinue to be dependent on a number of other factors, including the timing ofcollection on our contract receivables, processing of weekly and bi-weeklypayroll and associated taxes and payment to our suppliers. Our principal usesof cash will meet debt service requirements, finance our capital expendituresand provide working capital. Our future operating performance and ability toextend or refinance our indebtedness will be dependent on future economicconditions and financial, business and other factors that are beyond ourcontrol.

 

**Item 3.   Quantitative and Qualitative Disclosures About Market Risk.**

 

Weare exposed to market risk, primarily from the impact of interest rate changeson our potential use of variable rate debt which was $2.8 million at July 1,2006. Our exposure to market risks from foreign currency and commodity pricefluctuations is limited since all of our fiscal year 2006 and 2005 purchases

 

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andsales are denominated in U.S. dollars and since raw commodities do not comprisea significant percentage of our costs. Other than with respect to our sales tothe Canadian military, we generally do not have exposure to foreign currencyrisk. In addition, because our customary contract terms pass through increasesin the costs of commodities underlying our products to our customers, wegenerally do not have exposure to commodity price risk. Other than with respectto potential hedges on sales to the Canadian military, we do not hedge ourexposure to foreign currency or 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. We had limited exposure to variablerates at July 1, 2006. We believe that a hypothetical 1% increase ininterest rates on our variable rate debt for a one-year period would have hadno significant impact on our net income.

 

**Item 4.    Controlsand Procedures.**

 

**a. Evaluation of Disclosure Controls and Procedures**Our management, with the participation of our Chief Executive Officer and ourChief Financial Officer, has evaluated our disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act).Based on that evaluation, our Chief Executive Officer and Chief FinancialOfficer have concluded that, as of the end of the period covered by thisreport, our disclosure controls and procedures were effective to ensure thatinformation required to be disclosed in reports that we file or submit underthe Exchange Act are: (1) recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms; and(2) accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

**b.Changes in Internal Controls**

Therehave been no changes in our internal controls over financial reporting thathave occurred during the twenty-six weeks ended July 1, 2006  that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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**FORWARD-LOOKINGSTATEMENTS**

 

Thisreport includes “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements are thosethat do not relate solely to historical fact. They include, but are not limitedto, any statement that may predict, forecast, indicate or imply future results,performance, achievements or events. They may contain words such as “believe,” “anticipate,”“expect,” “estimate,” “intend,” “project,” “plan,” “will,” or words or phrasesof similar meaning. They may relate to, among other things:

 

•  ourliquidity and capital resources;

 

•  ourcontracts with the U.S. government;

 

•  theU.S. Department of Defense budget in general and the U.S. military activity inparticular;

 

•  ourco-manufacturing plans;

 

•  competitivepressures and trends in our industry;

 

•  prevailinginterest rates;

 

•  legalproceedings and regulatory matters;

 

•  otherrisks related to our Senior Secured Notes (including the value of thecollateral);

 

•  generaleconomic conditions; and

 

•  ourdevelopment and expansion plans and expectations 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 materially fromtrends, plans or expectations set forth in the forward-looking statements andthat may adversely affect us. It is not possible for us to predict all of theserisks, nor can we assess the extent to which any factor, or combination offactors, may cause actual results to differ from those contained inforward-looking statements. The foregoing list of important factors and otherrisk detailed from time to time in the Company’s reports filed with the SEC arenot exhaustive. The Company assumes no obligation to update its forward-lookingstatements.

 

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**PART II — OTHER INFORMATION**

 

**Item 1.         Legal Proceedings.**

 

Duringthe twenty-six weeks ended July 1, 2006, there were no material changes tothe Company’s previously disclosed legal proceedings. Additionally, we are, andfrom time to time may be, a party to routine legal proceedings incidental tothe operation of our business. The outcome of any pending or threatenedproceedings is not expected to have a material adverse effect on our financialcondition, operating results or cash flows, based on our current understandingof the relevant facts. Legal expenses incurred related to these contingenciesare expensed as incurred.

 

**Item 1A. Risk Factors.**

 

Therehave been no material changes in risk factors from those described in Part I,Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2005, filed with the SEC on March 31, 2006.

 

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

 

None.

 

**Item 3.    DefaultsUpon Senior Notes.**

 

None.

 

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

 

None.

 

**Item 5.    Other Information.**

 

None.

 

**Item 6.    Exhibits.**

 
| **No.** | ** ** | **Description**                                                                                                                                                   |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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)               |

 

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**Signatures**

 

Pursuantto the requirements of the Securities and Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                         | TWC  Holding LLC |
|------------------------------|------------------|
|                         | (Registrant)     |
|                         |             |
| Date:  August 15, 2006       | By:              | /s/  Michael M. Thompson |   |
|                         |             | Michael  M. Thompson |
|                         |             | President  and Chief Executive Officer |
|                         |             | (Principal  Executive Officer) |
|                         |             |   |
|                         |             |   |
| Date:  August 15,  2006 | By:              | /s/  Brian A. Lutes |   |
|                         |             | Brian  A. Lutes |
|                         |             | Chief  Financial Officer and Treasurer |
|                         |             | (Principal  Financial Officer and |
|                         |             | Principal  Accounting Officer) |

 

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