**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

 

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**FORM 10-K**

 

**FOR ANNUAL AND TRANSITION REPORTSPURSUANT TO**

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

 
|   |   | **(Mark One)**                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------|
|   |   |                                                                                                |
| ý |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thefiscal year ended December 31, 2005**

 

**OR**

 
| o      |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                       |
|   |   | **For the transition period from                        to                      ** |

 

**Commissionfile number: 333-119336**

 

**THE WORNICK COMPANY**

(Exact Name of Registrant asSpecified in Its Charter)

 

**Delaware**

(State or Other Jurisdictionof Incorporation or Organization)

 

**30-0225741**

(I.R.S. EmployerIdentification No.)

 

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

 

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

**None**

 

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

**None**

 

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

 

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

 

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

 

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

 

Indicate by checkmarkwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer  o  Accelerated filer  o  Non-accelerated filer  ý

 

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

 

No voting stock of TheWornick Company is held by non-affiliates of The Wornick Company.

 

Indicate the number ofshares outstanding for each of the Registrant’s classes of Common Stock, as ofthe latest practicable date:  On March 27, 2006, one share ofRegistrant’s Common Stock, par value $0.01, was outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE:**

** **

**None.**

 

 

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THE WORNICK COMPANY

TABLE OF CONTENTS

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

 

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**Cautionary Statements RegardingForward-Looking Statements**

 

This report includes “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of1995, including statements about our business, operations, financial resultsand future prospects. Forward-looking statements are those that do not relatesolely to historical fact. They include, but are not limited to, any statementthat 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:

 

•                  our liquidity and capital resources;

 

•                  our contracts with the U.S. Government;

 

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

 

•                  our co-manufacturing plans;

 

•                  competitive pressures and trends in ourindustry;

 

•                  prevailing interest rates;

 

•                  legal proceedings and regulatory matters;

 

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

 

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

 

•                  general economic conditions; and

 

•                  our development and expansion plans andexpectations for the future.

 

These forward-looking statements reflect our currentviews with respect to future events and are based on assumptions and subject torisks and uncertainties, including, but not limited to, economic, competitiveand governmental factors outside of our control, that may cause actualresults to differ materially from trends, plans or expectations set forth inthe forward-looking statements and may adversely affect us. These risksand uncertainties include those factors discussed in Part I, Item 1A, “RiskFactors,” and other risks detailed from time to time in our reports filed withthe Securities and Exchange Commission.

 

It is not possible for us to predict all risks anduncertainties, nor can we assess the extent to which any factor, or combinationof factors, may cause actual results to differ from those contained inforward-looking statements. Given these risks and uncertainties, we urge you toread this report and any subsequently filed reports with the understanding thatactual future results may be materially different from what we plan orexpect.

 

We are not under any duty to update any of theseforward-looking statements after the date of this report to conform suchstatements to actual results or to changes in our expectations. Allforward-looking Statements contained in this report and any subsequently filedreports are expressly qualified in their entirety by these cautionarystatements.

 

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**PART I.**

 

*As used in this report, allreferences to “Wornick,” “we,” “our,” “us,” “the Company” and all similarreferences refer to The Wornick Company, a Delaware corporation, and itssubsidiaries as a consolidated entity, unless otherwise expressly stated or thecontext otherwise requires.*

 

**ITEM 1:   Business**

 

**Overview**

 

On June 30, 2004, as described in more detailbelow under the caption “—Acquisition Transactions,” we acquired our businessfrom a Predecessor Company. Our Predecessor Company began operations in 1971,and was the first contractor to complete delivery of Meals Ready-to-Eat, or “MREs,”to the Department of Defense, or “DoD” in 1981. In each subsequent year, theDoD has awarded our Predecessor Company and, subsequent to the acquisition, uscontracts to deliver MREs and other food products. In 1995, Mr. Ronald C.Wornick, one of the founders of our business retired and sold our PredecessorCompany to certain of its employees through an employee stock ownership trust. Since1995, our business expanded into new military and commercial products.

 

We are the leading supplier of individual and groupmilitary field rations to the DoD. We specialize in the production, packagingand distribution of extended shelf-life, shelf-stable and frozen foods inflexible pouches and semi-rigid containers. With over 30 years ofexperience in the food manufacturing and food processing businesses, we believewe have a reputation for superior quality and service in developing andproducing unique meal solutions for the military and for the consumer andfoodservice markets. We are a primary supplier to the DoD of MREs, UnitizedGroup Rations-A or “UGR-As,” and the Tray-Packs that are used in the UnitizedGroup Rations—Heat & Serve, or “UGR-H&S,” program. Our customersalso include, but are not limited to, Kraft Foods Inc., or “Kraft,” GerberProducts Company, or “Gerber,” Quaker Oats Company, or “Quaker,” Delmonte FoodsCompany, or “Delmonte,” The Keefe Company, or “Keefe,” the Canadian Ministry ofDefense, retail stores including Walgreen Co., or “Walgreen” and 7-Eleven, Inc.,or “7-Eleven,” and grocery stores such as The Kroger Co., or “Kroger,” PublixSuper Markets, or “Publix,” and Meijer. Given the elevated levels of deploymentof U.S. armed forces in Afghanistan and Iraq and an anticipated continuation ofhigh levels of U.S. military activity worldwide, we believe that the demand forour military food products will remain strong.

 

We have become a leader in developing andcommercializing thermostabilization technologies for processing and packagingfoods using flexible and semi-rigid packaging. Our packaging technologies andstabilization processes prolong the shelf-life and enhance the quality of ourproducts and have a broad range of applications. The stabilization processes weutilize include retort processing, hot-fill, in-line pasteurization,post-packaging pasteurization and frozen food technologies. With ourindustry-leading technology and capabilities, we have developed innovativeapproaches to the manufacturing of entrées, side dishes and desserts, and weoffer a turnkey food processing operation that allows us to manage a conceptfrom product development to full-scale manufacturing through ultimatedistribution.

 

**Acquisition Transactions**

 

On December 3, 2003, The Wornick Company, aDelaware corporation, an acquisition vehicle formed by The Veritas Capital FundII, L.P., and its general partner, Veritas Capital Management II, L.L.C.(Veritas Capital Management), entered into an Assets Purchase and Sale Contractwith The Wornick Company, a Nevada corporation, or the “Predecessor Company,”and its subsidiaries, The Wornick Company Right Away Division, a Nevadacorporation, The Wornick Company Right Away Division, L.P., a Texas limitedpartnership, and Right Away Management Corporation, a Texas corporation. TheAssets Purchase and Sale Contract, as amended, provided for the purchase by usand the sale by the Predecessor Company, of the business of the PredecessorCompany and its subsidiaries as a going concern, including substantially all oftheir operating assets, and the assumption of certain of the liabilities of thePredecessor Company and its subsidiaries, or the “acquisition.”  The grosspurchase price of the business, subject to a post-closing

 

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purchase price adjustment, was $155 million, ofwhich $150 million was paid to the sellers at the closing and the remaining $5million was paid to an escrow agent as escrow for the sellers’ obligationsunder the Assets Purchase and Sale Contract. The acquisition closed on June 30,2004. In October 2004, approximately $99,000 was repaid by the sellers tous as a purchase price adjustment. To date, we have not submitted any requestfor payment on the escrowed funds and on October 3, 2005, the remainingescrowed funds were released to the sellers.

 

We funded the purchase price of the acquisition andthe related fees and expenses with the proceeds of an offering of our 10(7)/8%Senior Secured Notes due 2011, or the original notes, and the contribution ofequity investments in TWC Holding LLC, our direct parent, as follows:

 

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

 

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

 

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

 

We entered into a senior secured revolving creditfacility, or the credit facility, of up to $25 million concurrently with theclosing of the acquisition and the notes offering. We have the option to payonly interest on amounts borrowed under the facility at an annual adjustableinterest rate calculated in accordance with the applicable promissory note.

 

The closing of the offering of the original notes,or “notes offering,” occurred simultaneously with the closing of theacquisition, our new credit facility and the other financing transactionsdescribed above.

 

We refer to the acquisition, the notes offering, ourentering into the new credit facility and the other financing transactionsdescribed above collectively as the “acquisition transactions.”

 

**Issuance of 13.875% Senior PIKNotes due 2011 by TWC Holding LLC and TWC Holding Corp. on February 11,2005**

 

On February 11, 2005, our direct parent, TWCHolding LLC (the “Parent Company”), and its wholly-owned finance subsidiary,TWC Holding Corp., co-issued their 13.875% Senior PIK Notes due 2011, or the “SeniorPIK Notes,” in the approximate aggregate principal amount of $62,259,000 with adiscount of approximately $36,259,000. The Senior PIK Notes earn interest atthe rate of 13.875% per annum, mature on August 15, 2011 and are unsecuredobligations of our Parent Company and TWC Holding Corp. Neither the Company norany of its subsidiaries guaranteed the Senior PIK notes. The notes limit theCompany’s ability to incur additional indebtedness and pay dividends or makeother distributions as well as to make certain investments and sell certainassets or merge with or into other companies. Because our ParentCompany is a holding company with no operations and has only itsinvestment in the Company, and because TWC Holding Corp. has no independentoperations or assets, future cash flows or assets of the Company through 2011 may berequired to service the $62.3 million Senior PIK notes upon their maturity.

 

**Segment Information**

 

We have two reportable segments, the Right AwayDivision, or “RAD,” and the Prepared Foods Division, or “PFD.”  The RADdivision is our core military supply business and the PFD division includes ourcore consumer and commercial business. In addition, the PFD division suppliesthe RAD division with intermediate items used to assemble products distributedby the RAD division as well as directly supplying military customers withcertain items. On February 6, 2006, we announced the consolidation of ourRAD operations into our PFD division. For a fuller discussion of the operatingresults of these segments, please

 

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see Part II Item 7, “Management’s Discussionand Analysis of Financial Condition and Results of Operations—Results ofOperations—Operating Segment Results.”

 

**Industry Outlook**

 

*Military.*The U.S. defense environment has changeddramatically since 2001 with the extensive deployment of U.S. armed forces toAfghanistan and Iraq. In both situations, the U.S. armed forces require ongoingration support systems in intense and highly mobile combat situations. With thechanges in the military’s mobilization techniques and the need for the highestlevel of food safety and security, we believe that after completion of our recentlyannounced move to consolidate operations by discountinuing our Assemblyoperations facility in McAllen, Texas and shifting the work performed at thatlocation to the Greater Cincinnati Tri-state area, we are well situated tocontinue our leadership position in feeding the military in both times of peaceand war.

 

We expect our core military business of providingextended shelf-life products to the military customers to experience steady toslightly lower demand in the upcoming year due to recent forth quarter surgecontract orders placed by the DoD ahead of the MRE-26 award which is a fiveyear fixed price contract through fiscal year 2010. We are one of only threecompanies approved by the DoD to supply MREs. As of March 29, 2006 the DoDaward for the MRE - 26 to 30 bid has not been announced.

 

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

 

**Products**

 

*Military Products*

 

The following table outlines the products for ourmilitary segment:

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

 

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

 

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

 

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

 

We also use modified atmosphere packaging techniquesto extend the shelf-life of the various snack and bakery components of the MRE.We have received numerous quality awards from the DSCP for the assembly andpackaging of MREs. An MRE is capable of withstanding low-level airdrop andstorage in heavy humidity to wet conditions without degradation of thepackaging.

 

We currently provide MREs to the DoD pursuant to acontract awarded in March 2003 by the DSCP, which is responsible forprocuring military field rations for the DoD, in connection with an IndustrialPreparedness Agreement between the DoD and us. We expect the current MRE-25contact to expire near the end of the first quarter 2006. The DoD enters intoIndustrial Preparedness Agreements with contractors to ensure that a highproduction and assembly capacity and a large amount of special equipment isavailable at all times to accommodate a potential surge in militaryrequirements. The typical historic MRE contract is a three-year fixed-pricecontract consisting of one base year and two option years, which the DSCP hasalways exercised. Our current contract calls for a base delivery of 875,000cases (12 MREs per case), plus an add-on of up to 50% of the base MRE quantity,increasing the potential total volume to approximately 1.3 million casesper year, not including any military surge quantities. In the third and fourthquarters of fiscal 2005, the DSCP invoked its rights under the contract topurchase surge quantities from us. Awards were granted to us under threeseparate surge awards totaling approximately $71.3 million. We expect finaldelivery of all surge orders to be completed in April 2006. We submitted abid for the next MRE contract during 2005, which we anticipate will be awardedat the expiration of the current MRE-25 surge awards, and which will be afive-year contract with a one-year base period and four renewal periods ofone-year each, with deliveries starting in 2006. The DSCP, as part of its “TotalSystems Approach,” is also evaluating the outsourcing of remaining governmentfurnished components of the MRE program for procurement by the assemblycontractors.

 

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

 

The UGR-A provides A-Ration (freshly prepared) mealsin the field that are comparable to commercially available hot foodservicemeals. The UGR-A is used when field kitchen equipment becomes available and isconfigured into 50-person meal modules for ease of ordering and distribution. EachUGR-A module consists of three boxes, one with frozen food and the restcontaining non-refrigerated commercial food items and side dishes, eatingutensils, beverages and condiments. The seven breakfast and 14 lunch/dinnermenus contain all necessary food items and disposable items (such as cups andtrays), with the exception of perishable items such as bread and milk. Underour UGR-A contract, UGR-As assembled for consumption in the continental UnitedStates must have a minimum shelf life of three months, and modules assembledfor consumption outside the United States must have a shelf life of ninemonths.

 

We are responsible for the ordering, packaging andlogistics associated with assembling and delivering UGR-As to the requiredmilitary bases. Substantially all of the UGR-A components are available frommultiple commercial food suppliers. We are currently working under anindefinite delivery, indefinite quantity contract awarded by the DSCP in July 2004.The eight-year contract calls for delivery of the meal modules on anorder-by-order basis. UGR-A contracts designate a set of military bases in thecontinental United States to which the contractor will provide UGR-A modulesduring the term of the contract. Every week, we and other contractors submitupdated component pricing to the DSCP for the next one-week period to adjustfor commercial component price fluctuations. This component price informationis used to determine the price for all UGR-As ordered during the followingone-week period. These weekly price submissions are also evaluated to determineawards of UGR-A purchases for delivery outside the continental United Statesduring the applicable one-week period. We delivered approximately 316,000modules in 2005, approximately 280,000 modules in 2004 and 856,000 modules in2003. Since the inception of the UGR-A program in 2000, we have been theleading supplier to the DSCP in terms of total volume. We believe that we havehistorically enjoyed a strong position in this market due to our ability torespond on short notice with on-time delivery of high-quality products,generally at the lowest price to the DSCP.

 

We plan to expand the scope of our participation inthe UGR-A program by directly supplying our own frozen breakfast and dinnerentrées for the program, in three-to-five pound Great Food Express pouches. Inearly 2004, we received approval from the DoD to supply a Great Food Expressentrée for the UGR-A program and began shipping the entrée in late 2004. Wereceived approval from the DoD to supply a second entrée developed by ourresearch and development facility for the next program year, which commenced inOctober 2005.

 

We have other food items that are in various stagesof development and evaluation by the DoD. We were one of four contractorsawarded an eight-year contract for UGR-A and received the highest market shareof the awarded contractors according to the estimated annual quantitiesprovided by the DSCP for continental United States or “CONUS,” UGR-A sales. Thecontract includes specific CONUS military base destinations that we will serveexclusively for the eight-year period. In addition, we will be eligible to bidfor the DSCP’s UGR-A requirements outside of the continental United Statesduring the eight-year contract.

 

*Tray-Pack*

 

We manufacture the Tray-Pack, a shelf-stable rationpackaged in a semi-rigid flexible tray as an extended shelf-life component andthe primary outsourced product of the UGR-H&S program. The UGR-H&S is atransitional field ration that is similar to the UGR-A discussed above but usesshelf-stable ready-to-heat Tray-Packs rather than frozen, canned or dried foods.It is a transitional field ration that can be used in the early stages ofmilitary activity because it does not require the extensive supportinfrastructure of refrigeration or full kitchens. Tray-Packs can be heated insteam tables and served directly from the tray. Each container provides betweennine and 18 servings. The entrée and side servings are ready-to-heat, reducingfood preparation time and water and fuel usage. As with our entrée packs forMREs, we utilize our expertise in food processing and retort packaging tomanufacture durable low-cost Tray-Packs. We

 

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supplied the DSCP with this product under afive-year fixed-price contract, which expired in 2005. As of March 29, 2006,the new Tray-Pack award has not been announced. Since the U.S. Government beganusing polymeric trays in military ration programs, we have been the number onesupplier of these trays to the DSCP in terms of total volume and quality performance,as reported by the DSCP and the U.S. Department of Agriculture, or the “USDA,”respectively.

 

Currently, the DoD assembles the UGR-H&S rationat government-owned depots, but the DSCP is evaluating the possible outsourcingof the assembly of UGR-H&S. Based on our experience as the leading supplierof UGR-As, the assembly of which is nearly identical to the UGR-H&S, webelieve we are strongly positioned to be a leading provider of UGR-H&Sassembly services. We also plan to be in the forefront of the development ofentrées, side dishes and sauce components for the Army’s new Unitized GroupRations – Express (UGR-E) program, which uses self-heating Tray-Pack modules toprovide hot meals in remote locations, as well as other new Army feedingsystems.

 

*Humanitarian Daily Rations (HDR)*

 

The HDR is similar to the MRE in its packaging, butits contents are designed to provide a full days’ sustenance to a moderatelymalnourished individual rather than feed an active soldier. The HDR is composedof ready-to-eat thermostabilized entrées and complementary components. In orderto gain the widest possible acceptance from potential consumers with diversereligious and dietary restrictions from around the world, the HDR contains noanimal products or animal by-products, except for minimal amounts of dairyproducts, and it excludes any alcohol or alcohol-based ingredients. The mealbag contains user-friendly graphics describing its contents and instructionsfor opening the bag in three different languages. Additionally, these rationsare packaged to withstand extreme environmental conditions and to allowairdrops when necessary.

 

As part of our MRE base award, we areresponsible for manufacturing the entrée and support components and assemblingthe HDR pack. In conjunction with the MRE contract awarded to us in March 2003,we are required to deliver a minimum of 100,000 and a maximum of2.5 million HDR day-packs per year, as may be ordered by the DSCP,throughout the three-year life of the MRE contract. HDR day-packs are stockpiledworldwide to prepare for emergency situations. HDR inventory is managed by theDefense Security Cooperation Agency (DSCA) and HDR day-packs are provided inemergency and other humanitarian situations at its discretion. DSCA employs theDSCP solely as a purchasing authority for assembled HDR day-packs. In fiscal2005, we delivered approximately $395,000 worth of humanitarian rations insupport of relief efforts following the earthquake in Pakistan andapproximately $1.2 million in special humanitarian aid packages to victims of HurricaneKatrina. Also, as discussed above, in the third and forth quarters of 2005, theDoD exercised surge options in the wake of those Hurricanes which resulted inapproximately $71.3 million of unplanned orders. These surge orders willprimarily take place in the forth quarter 2004 and first quarter of 2006.

 

*Tailored Operational Training Meal(TOTM)*

 

The TOTM ration provides an alternative operationaltraining meal in lieu of sack lunches and catered commercial meals to soldiersengaged in inactive duty training for use in situations where traditionaloperational ration meals are not mandated. This ration employs many of the samecomponents as the MRE. Menus typically contain an MRE entrée, wet-pack fruit, abeverage base, flameless heater, dining kit and other assorted components. Sincethey were introduced in 2002, TOTM rations have been used mainly for trainingby the National Guard. This meal, a low-cost alternative to MREs, helpsindividuals become familiar with the preparation, use, consumption and disposalof pre-packed meals similar to MREs. The TOTM is lightweight and fits easilyinto military field clothing pockets. It also may easily be adapted fordisaster relief efforts.

 

As with our MRE and HDR rations, we manufactureentrée packs and provide product assembly services for TOTMs. Under aBlanket Purchase Agreement issued by the DSCP in April 2002, we provideTOTMs as ordered by individual National Guard supply centers, through theDSCP.

 

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*Co-Manufactured Products*

 

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 and otherco-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 as wellas newly 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.

 

The majority of our co-manufacturing supplycontracts include a capital component through which the customer funds aportion of the capital required to support production of the related product. Underthese arrangements, we provide the initial financing for capital expenditures. Weown all of the equipment acquired under such agreements, which are structuredto minimize our obligation to make capital expenditures if a project isdiscontinued unexpectedly by requiring the customer to pay the entire balanceof the capital expenditure portion remaining due under the supply contracts. Ifwe do not use the entire capacity of the equipment to supply our co-manufacturingcustomer, we have the right to use the equipment in our other businesses. Our co-manufacturingcontracts are generally mutually exclusive, in that we are restricted frommaking the co-manufactured product for other customers, and likewise ourcustomer may not buy such products from other suppliers.

 

*Kraft Macaroni & Cheese*

 

Kraft, the largest seller of shelf-stable meals inthe United States, is our longest-standing co-manufacturing customer. Since1998, we have worked in partnership with Kraft to produce single-serve frozenKraft Macaroni & Cheese in 7-ounce and 10-ounce packages, which arefrozen in-line and shipped directly into Kraft’s frozen foods distributionnetwork. We were awarded this business on the basis of our proprietary blendingprocess. We were identified by Kraft as the only supplier able to match thequality and taste of Kraft’s “blue box” Macaroni & Cheese. Kraftdistributes this product to some of the largest national restaurant chains forservice as a selection on their children’s menus.

 

Under a contract effective September 2003, weare the exclusive manufacturer of single-serve frozen Kraft Macaroni &Cheese through 2006. Following 2006, the contract will renew automatically inone-year increments unless terminated within 180 days of the expirationdate. Our deliveries of single-serve frozen Kraft Macaroni & Cheesehave grown by more than 16% per year since the original contract began in 1998.In 2004, we installed a high-speed production line which effectively doubledour prior capacity for this product. We expect that this new production linewill contribute to continued growth and allow us to expand our production at afaster rate.

 

*Kraft Boca Italian Entrées*

 

In March 2003, we began manufacturing a line offrozen Italian entrées for Kraft’s Oscar Mayer division. Boca Italian entréesare an expansion of Oscar Mayer’s established Boca line of meat-substituteproducts. We manufacture two single-serve entrées, Italian Lasagna and CheeseRavioli, which are covered with a specially formulated sauce containing Bocacrumbles. The product is packaged in an oven-ready tray that is heat sealed andshipped frozen to Kraft’s warehouses for distribution to retail outlets. Infiscal 2005, this line contributed approximately $1.9 million to revenue. Asthis contract expired at the end of fiscal 2005, we anticipate that productionof the Kraft Boca lines will cease in June 2006.

 

*Gerber Lil’ Entrées*

 

In 2001, we developed and began manufacturing ninevarieties of Lil’ Entrées pursuant to an exclusive North American supplyagreement for Gerber, an international branded baby food company. This shelf-

 

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stable product line is an extension of Gerber’sindustry-leading baby food line, packaged in a plastic tray and targeted forbabies between eight months and 14 months. We have entered into anagreement with Gerber to construct a new high-speed production line, that willcome on-line in fiscal 2006, that will triple our current capacity to produceLil’ Entrées in 2006. Upon the commencement of production on the new line, ouragreement with Gerber will extend through 2010. The contract will automaticallyrenew for additional two-year increments following that time unless otherwiseterminated.

 

*Quaker Oats Company*

 

In October of 2004, we began manufacturingshelf stable products launched in a limited number of markets pursuant to athree-year exclusive supply agreement with Quaker, a unit of PepsiCo Beveragesand Foods, one of the worlds largest consumer brand companies. These productsare extensions of one of Quaker’s category-leading brands and were launchednationally in 2005.

 

*Delmonte*

 

In June 2005, we began manufacturing shelfstable bowl products for Delmonte’s use in their private label soup businessunder a five-year agreement. Subsequently in early 2006, Delmonte sold theirprivate soup label business to a third party who has yet to determine ifWornick will continue to be the manufacturer of choice for this business. Weare currently working with Delmonte and are evaluating our options under theexisting agreement.

 

*Keefe*

 

In March 2005, we began manufacturing shelfstable products pursuant to an exclusive five-year agreement with automaticrenewal for a three-year term. Keefe is a leading supplier to and operator ofcorrectional institution commissaries throughout the United States. Wornickprovides shelf-stable pouched entrees for sale within these commissaries underthe Keefe name brand.

 

*Other Customers*

 

InDecember 2005, we entered into a three-year agreement with three-yearautomatic renewals to produce shelf-stable entrees in bowls and pouches as wellas shelf-stable meal kits. The customer is a fast growing provider of direct toconsumer marketed foods with specific nutritional needs. The customer cannot bedisclosed because of applicable confidentiality obligations.

 

*New Business Opportunities*

 

We continually seek opportunities to use ourtechnologies and experience to partner with established branded food companiesin new co-manufacturing arrangements. We continue to be engaged in severallarge projects that are in various stages of development and consumer testing. Allof these projects are with category-leading companies, including some of theworld’s largest food brands.   We believe that we are well-positioned tosecure contracts in connection with these and future opportunities.

 

*Branded Consumer Products*

 

In 2000, we developed, produced, and marketedHomestyle Express, an award-winning brand of shelf-stable, single-serve bowlmeals positioned to offer good tasting, convenient food for busy adultconsumers. Homestyle Express was consistently recognized for its superior tasteand has received Gold Medal Taste Awards for Excellence from the AmericanTasting Institute for four consecutive years beginning in 2001. It alsoreceived the Best New Product Award from the Convenience Store News and several“innovation in packaging” awards.

 

The Homestyle Express product line consisted of fiveentrées packed in shelf-stable microwaveable 10.5-ounce bowls that require norefrigeration and heat in 90 seconds and three Asian Style Selections that were

 

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packed in 18-ounce stand-up pouches which were readyto heat and serve in two minutes. We offered Homestyle Express products forsale through various channels, including mass merchandise outlets, grocerystores, drug stores, convenience stores and warehouse clubs.

 

Our Homestyle Express products were initially soldin stores operated by Wal-Mart Stores, Inc., or “Wal-Mart.”  However,due to slow sales, we have not achieved our sales and profitability targets forthis brand and in the third quarter of 2005 we discontinued sales of this line.

 

*Branded Foodservice Business*

 

In 2004, we began test marketing our services forcustomized foodservice entrée, side dish and sauce applications under the GreatFood Express brand. This brand is targeted at large foodservice chainrestaurants that seek products customized to their specifications inready-to-heat three-to-five pound shelf-stable pouches. Our shelf-stableproducts are designed for high-volume chain restaurants and institutional usersthat may have frozen/refrigerated storage constraints, food preparationlabor issues, high turnover or solid waste disposal problems.

 

We began shipping our Great Food Express commercialfoodservice brand in the first quarter of 2004 to customers such as Krogersupermarket delis and the U.S. Navy. In addition, we plan to expand the scopeof our participation in the UGR-A program by directly supplying our own frozendinner entrées for the program in three-to-five pound Great Food Expresspouches. We have been approved for 2 of 14 total dinner menus and are seekingto gain additional approvals in 2006. Finally, we additionally launched ourfoodservice direct sales channel to prime military foodservice vendors via thelaunch of our A la Smart brand in July 2005.

 

**Manufacturing and Processing**

 

We process and package foods using the latestflexible packaging and stabilization technologies. We use a wide range offlexible packaging in the manufacturing process, including pre-formed pillowand gusseted pouches, vertical and horizontal form fill pouches, andsingle serve and bulk size semi-rigid plastic containers. All of these packagesuse heat seal technology to produce a hermetically sealed container.

 

Our stabilization processes are enhanced by ourability to integrate five primary stabilization methods into each of ourpackaging technologies, including retort, hot-fill, in-line pasteurization,post-packaging pasteurization and frozen food technologies:

 

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

 

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

 

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

 

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

 

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

 

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These methods, along with our modified atmospherepacking technology, prolong shelf-life and maintain product quality. Usingportion control technology, we package individual serving size packages inflexible and semi-rigid formats for retorted, frozen or pasteurized productsranging in size from three ounces to five pounds.

 

Our manufacturing plants utilize a comprehensivequality systems approach that incorporates the benefits of InternationalStandards Organization systems, total quality management and statisticalprocess control systems. We purchase modular and versatile equipment for use inour manufacturing facilities, which we then customize in-house to ourspecifications to meet the requirements of each product line. This haspermitted us to increase the flexibility of our manufacturing lines and enhanceour manufacturing efficiency.

 

We have also improved efficiency through ourcontinual investments in integrating more productive manufacturing equipmentand the strategic implementation of automated technology into many aspects ofour operations. This integration has reduced our labor and manufacturing costs,removed manufacturing inefficiencies and improved response times for deliveries.In addition, automated technologies, including robotics and self-guidedtransport carts, have reduced the frequency of on-site employee injuries,increased the efficiency of our manufacturing lines and the utilization of ourretort equipment.

 

In addition to our manufacturing capabilities, weoffer an extensive range of services in custom contract assembly, productdesign and supply chain management. We operate fully independent EnterpriseResource Planning (ERP) systems at each of our primary facilities to optimizeour supply chain and to ensure efficient receiving and warehousing proceduresand production, allowing us to meet demanding delivery schedules and adhere torigorous quality standards. We are the quality leader among our competitors inthe production of MREs, UGR-As and Tray-Packs and have received the number onerating in customer quality audits and manufacturing quality from the DSCP. TheDSCP audits its suppliers annually, and on-site U.S. military inspectors andthe USDA monitor our quality performance.

 

Our contracts with the DSCP require us to maintain amaximum supply capacity for each of our DoD supply programs, including a maximumof 834,000 cases per month under our MRE contract, 750,000 modules per monthunder our UGR-A contract and approximately 117,000 to 217,000 units per monthunder our Tray-Pack contract. We generally operate below these levels on amonthly basis. Therefore, our facilities usually have significant excessmanufacturing capacity, which provides us with substantial flexibility inplanning future initiatives in our commercial and military businesses.

 

**Sales, Marketing and Distribution**

 

*Military*

 

Our contract administration department isresponsible for overseeing our contracts with the DSCP. This group, togetherwith our executive team, is dedicated to managing and serving the DSCP, andensuring that we are meeting the requirements of the U.S. Government. Our salesto the Canadian military are managed by a sales manager in our salesorganization.

 

We ship products for which we provide finalassembly, such as MRE and UGR-A modules, directly to military bases in thecontinental United States, as well as to U.S. military installations overseasand various global storage centers. We ship products for which we providemanufacturing, such as Tray-Packs, to U.S. Government depots for final assemblyand distribution.

 

*Co-Manufacturing*

 

Historically, we acquired new co-manufacturingbusiness by responding to potential customers’ requests for proposals and in2005 we actively pursued new co-manufacturing business through the execution ofmultiple projects for strategic accounts that are leaders in their respectivefood categories. We plan to

 

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aggressively market our supply chain services andvalue-added product solutions while leveraging our extensive existing contactsand support infrastructure.

 

In our co-manufacturing program, our Chief OperatingOfficer is responsible for coordinating the deployment of internal resources,including research and development, engineering, supply chain management andmanufacturing, to execute a comprehensive, turnkey commercialization plan todevelop, test, and ultimately manufacture new products. After a product islaunched, the account is assigned to a customer service representative, who isresponsible for day-to-day account management.

 

Our Supply Chain department is focused onsuccessfully integrating our systems with those of our customers to provide acomprehensive outsourced product management solution, from the sourcing ofmaterial to the delivery of the end product. Historically, our reputation inthe industry and our record of meeting our commitments to our customers haveled customers to seek out our services. In the future, we intend to pursue amore aggressive sales strategy in which we will seek out specific brandedpartners and initiatives that align with our core competencies in heat sealedflexible packages and thermostabilized products. We will continue to pursuerelationships with large branded businesses that are leaders in theirrespective categories and we intend to add at least two more major industryplayers as customers of our co-manufacturing business over the next three years.Generally, we have favored deeper, more value-added relationships with asmaller number of customers, rather than less comprehensive relationships withmany customers. This approach has allowed us to build on our strengths byparticipating extensively in the early stage development of products and theircommercialization. We generally ship co-manufactured products to our customers’warehouses for further distribution to consumer outlets.

 

*Branded Foodservice Business*

 

Our branded foodservice business is managed by ourvice president of sales and marketing. We handle our Great Food Expressmilitary sales directly. We have introduced Great Food Express into themilitary prime vendor feeding programs through our strong existing militarybusiness relationships.

 

**Suppliers**

 

We purchase our food and packaging supplies on anas-needed basis from commercial suppliers, with the exception of a limitednumber of components that are supplied to us by the U.S. Government for our MREcontract. The DSCP has indicated that it is evaluating the outsourcing of allcomponents of the MRE program. We do not rely on any single commercial supplierfor a significant component of our business.

 

**Product Development**

 

In 2003, we constructed a modern product developmentfacility to support our ongoing efforts to refine and improve the quality ofour existing products. We maintain an ten-person research and productdevelopment team with culinary expertise, in-house process authority and foodscience knowledge. This team supports our commercial and military productdevelopment and collaborates with our co-manufacturing customers. For themilitary products, the team develops a wide range of products from breakfast todessert, that meet stringent government nutritional requirements. In addition,we have worked with the U.S. Government on creating packaging materials forfield rations, such as our development and production of the Tray-Pack for theUGR-H&S program. This team also provides expertise on package selection toensure that the packaging can withstand airdrop, rough handling and temperatureextremes. In addition, this team works with our engineering staff andoperations personnel to develop the product, package and process for eachproduct concept.

 

Our product development initiatives arise from anumber of sources. We react to our customers’ needs by focusing a portion ofour product development resources on product ideas that satisfy theirrequirements. In other cases, our product development initiatives are responsesto our internal desire to reduce costs or improve product quality on existingproduct lines. Project-specific co-manufacturing initiatives are designed withfee structures that allow us to cover our expenses related to productdevelopment. In

 

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addition, we monitor market trends to identifypotential opportunities to extend our own brands through additional productdevelopment activities.

 

**Customers**

 

Our sales are predominantly derived from threecontracts with the DSCP, which is responsible for the procurement of militaryfield rations for the DoD. Approximately 81% of our net sales for the yearended December 31, 2005 were made directly or indirectly to the U.S. Government.

 

Our primary co-manufacturing customers includeDelmonte, Keefe, Kraft, Gerber, Quaker and other co-manufacturing customers,which collectively accounted for approximately 16% of our net sales for theyear ended December 31, 2005. For the year ended December 31, 2005,our branded consumer, foodservice and miscellaneous products accounted forapproximately 3% of our net sales.

 

**Competition**

 

The MRE rations supply market is limited to us andtwo competitors: Ameriqual Foods, Inc. and SOPAKCO, Inc. Both of ourcompetitors in this market manufacture extended shelf-life foods similar toours. Their products include MREs, TOTMs and HDRs as well as severalcommercial products. In the UGR-A market, we compete with Ameriqual Foods, Inc.,Labatt Foods, a regional foodservice distributor, and The Advocacy and ResourceCenter. In the Tray-Pack market, our sole competitor has been Stegner Foods, or“Stegner,” a small specialty food products manufacturer based in Bridgetown,Ohio. In January 2005, Stegner ceased operations indefinitely. We are theonly company with prime vendor contracts in each of the MRE, UGR-A andUGR-H&S programs. Our contracts under these programs are subject to therisks related to government contracts. For a discussion of these risks, pleasesee the related risk factors under Part I, Item 1A, “Risk Factors—RisksRelated to Our Business.”

 

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

 

In the branded foodservice market, our competitorsinclude major consumer branded food companies, such as Hormel Foods Corporationand General Mills, Inc.’s Betty Crocker. Competitors to our Great FoodExpress line include frozen as well as canned products.

 

**Regulatory Matters and GovernmentContracts**

 

For the year ended December 31, 2005, 81% ofour net sales were derived from contracts with the U.S. Government or U.S.Government agencies. Under U.S. Government regulations, certain costs,including certain financing costs, portions of research and development costs,lobbying expenses, certain types of legal expenses and certain marketingexpenses related to the preparation of bids and proposals, are not allowed forpricing purposes. The U.S. Government also regulates the methods under whichcosts are allocated to U.S. Government contracts.

 

The U.S. Government has significant unilateralrights under our contracts, including the ability to suspend us from receivingnew contracts pending resolution of alleged violations of procurement laws orregulations, terminate existing contracts, reduce the value of existingcontracts through partial termination and audit our contract-related costs andfees, including allocated indirect costs. Each of our U.S. Government contractscan be terminated by the U.S. Government either for its convenience or if wedefault under the contract. Termination for convenience provisions provide onlyfor our recovery of costs incurred or committed, settlement expenses and profiton the work completed prior to termination. Under termination for defaultprovisions, we are liable for excess costs incurred by the U.S. Government inprocuring undelivered items from another source.

 

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**Intellectual Property**

 

We have registered the names Homestyle Express®,Great Food ExpressTM andAsian Style SelectionsTM andcertain other names used by our products as trademarks or service marks withthe U.S. Patent and Trademark Office. We are not aware of any existinginfringing uses that could materially affect our business.

 

We believe that our trademarks and service marks arevaluable to the operation of our business and are important to our marketingstrategy. Accordingly, we anticipate renewing and otherwise maintaining ourtrademarks and service marks as may be required. Trademarks and servicemarks are generally valid as long as they are in use and their registrationsare properly maintained. Registrations of trademarks and service marks cangenerally be renewed indefinitely as long as the marks are in use.

 

**Employees**

 

We employ individuals with a high level of foodindustry experience and production expertise to ensure product quality andoperational efficiency. As of December 31, 2005, we had approximately 768 full-timeemployees. Approximately 84% of our employees are engaged in production, 1% ofour employees are engaged in research and development and 15% of our employeesare engaged in sales, marketing, product support and general administration. Werely on a substantial number of temporary employees on a continuing basis atour McAllen, Texas facilities, and during surge production periods at ourCincinnati, Ohio facilities. None of our workforce is unionized. We believethat we generally have good relations with our employees.

 

**Environmental Matters**

 

Our operations include (and those of past operatorsat our sites have included) the use, generation and disposal of hazardousmaterials. We are subject to various U.S. federal, state and foreign laws andregulations relating to the protection of the environment, including thosegoverning the discharge of pollutants into the air and water, the managementand disposal of hazardous substances and wastes, the cleanup of contaminatedsites and the maintenance of a safe workplace. We could incur substantialcosts, including cleanup costs, civil or criminal fines or sanctions andthird-party claims for property damage or personal injury, as a result ofviolations of or liabilities under environmental laws and regulations or thenon-compliance with the environmental permits required at our facilities.

 

These laws, regulations and permits also couldrequire the installation of costly pollution control equipment or operationalchanges to limit pollution emissions or decrease the likelihood of accidentalreleases of hazardous substances. In addition, new laws and regulations,stricter enforcement of existing laws and regulations, the discovery ofpreviously unknown contamination at our or other sites or the imposition of newcleanup requirements could require us to incur future costs that would have anegative effect on our results of operations or cash flow.

 

We believe that we have been and are in substantialcompliance with environmental laws and regulations and that we have noliabilities under environmental requirements that we would expect to have amaterial adverse effect on our business, results of operations or financialcondition. We have not incurred, nor do we expect to incur, material costsrelating to environmental compliance.

 

**Item 1A:   Risk Factors**

 

Investors should carefully consider the followingrisks and the other information in this report and our other filings with theSEC before deciding to invest in our company or to maintain or increase anyinvestment. The risks and uncertainties described below are not the only onesfacing our company. Additional risks and uncertainties may also adverselyimpact and impair our business. If any of the following risks actually occur,it could have a material adverse effect on our business, results of operations,or financial condition

 

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and the price of our company’s securities coulddecline and investors might lose all or part of their investment.

 

**Risks Related to Our Indebtedness**

 

***Our substantiallevel of indebtedness could adversely affect our financial condition andprevent us from fulfilling our obligations under our indebtedness.***

 

We have substantial indebtedness. As of December 31,2005, we had approximately $125.0 million of secured indebtedness. Ourhigh level of indebtedness could have important consequences to you, includingthe following:

 

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

 

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

 

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

 

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

 

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

 

We expect to obtain the money to pay our expensesand to pay the amounts due under the notes primarily from our operations andborrowings under our credit facility. Our ability to meet our expenses and makepayments under the exchange notes depends on our future performance, which willbe affected by financial, business, economic and other factors, many of whichwe cannot control. Our business may not generate sufficient cash flow fromoperations in the future and our currently anticipated growth in revenue andcash flow may not be realized, either or both of which could result in ourbeing unable to repay indebtedness, including the exchange notes, or to fundother liquidity needs. If we are unable to fund our capital needs, we may berequired to refinance all or part of our then existing debt on terms that may notbe advantageous to you, sell assets, reduce or delay capital investment orborrow more money. We cannot assure you that we will be able to accomplish anyof these alternatives on terms acceptable to us, or at all. The terms ofexisting or future debt agreements may restrict us from adopting any ofthese alternatives. In addition, we cannot depend on additional capitalcontributions or other investments from our stockholders and affiliates. Thefailure to generate sufficient cash flow or to achieve any of thesealternatives could materially adversely affect the value of the exchange notesand our ability to pay the amounts due under the exchange notes.

 

***Despite ourcurrent indebtedness levels, we may still be able to incur substantiallymore debt. This could exacerbate further the risks associated with oursubstantial leverage.***

 

We may be able to incur substantialadditional indebtedness, including additional secured indebtedness, in thefuture. The terms of the indenture governing the exchange notes restrict, butdo not completely prohibit, us from doing so. Our credit facility permitsadditional borrowings up to $25 million and all of those borrowings willrank equal in right of payment to the exchange notes and guarantees. We may drawdown additional amounts under our credit facility to provide funds foroperations. If new debt is added to our current debt levels, the related risksthat we now face could intensify. See Part II, Item 7,

 

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“Management’s Discussion and Analysis of FinancialCondition and Results of Operations —Liquidity and Capital Resources”.

 

***Our ability tomake payments under the notes and to service our other debt may depend oncash flow from our subsidiaries.***

 

Although Wornick is an operating company, oursubsidiaries hold material assets. Consequently, we may depend ondistributions or other intercompany transfers from our subsidiaries to makepayments under the exchange notes and our other debt. In addition,distributions and intercompany transfers to us from our subsidiaries willdepend on:

 

•                  their earnings;

 

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

 

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

 

•                  business and tax considerations; and

 

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

 

The operating results of our subsidiaries at anygiven time may not be sufficient to make distributions or other paymentsto us or that any distributions and/or payments will be adequate to pay anyamounts due under the notes or our other indebtedness.

 

***The indenturegoverning the notes and our credit facility impose significant operating andfinancial restrictions, which may prevent us from pursuing certainbusiness opportunities and taking certain actions.***

 

The indenture governing the notes and our creditfacility impose significant operating and financial restrictions on us. Theserestrictions limit or prohibit, among other things, our ability to:

 

•                  incur additional indebtedness;

 

•                  repay indebtedness prior to statedmaturities;

 

•                  pay dividends on or redeem or repurchase ourstock;

 

•                  issue capital stock;

 

•                  make investments;

 

•                  create liens;

 

•                  sell certain assets or merge with or intoother companies;

 

•                  enter into certain transactions withstockholders and affiliates;

 

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•                  sell stock in our subsidiaries;

 

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

 

•                  otherwise conduct necessary corporateactivities.

 

In addition, our credit facility also containscertain restrictions and notice provisions relating to changes in our seniormanagement, and requires us to meet certain financial ratios and financialcondition tests.

 

Events beyond our control can affect our ability tomeet these financial ratios and financial condition tests and to comply withother provisions governing our credit facility. Our failure to comply withthese obligations could cause an event of default under our credit facility. Ifan event of default occurs under our credit facility, our lenders could electto declare all amounts outstanding and accrued and unpaid interest under ourcredit facility to be immediately due, and the lenders thereafter couldforeclose upon the assets securing our credit facility. An event of defaultunder our credit facility could result in an event of default under our otherdebt instruments, including the notes. In that event, we may not havesufficient assets to repay all of our obligations, including the notes. We may incurother indebtedness in the future that may contain financial or othercovenants more restrictive than those applicable to our credit facility or theindenture governing the notes and on other unfavorable terms.

 

***To service ourindebtedness, we will require a significant amount of cash, and our ability togenerate cash depends on many factors beyond our control.***

 

Our principal sources of liquidity are cash flowgenerated from operations and borrowings under our credit facility. Our abilityto make payments on and to refinance our indebtedness, including the exchangenotes, and to fund planned capital expenditures will depend on our ability togenerate cash in the future. This, to a certain extent, is subject to generaleconomic, financial, competitive, legislative, regulatory and other factorsthat are beyond our control.

 

Our business may not generate cash flow fromoperations, that currently anticipated cost savings and operating improvements may notbe realized on schedule and that future borrowings may not beavailable to us under our credit facility in an amount sufficient to enable usto pay our indebtedness, including the exchange notes, and to fund our otherliquidity needs. If we are not able to generate sufficient cash flow or borrowunder our credit facility to provide funds for operations, we may need torefinance or restructure all or a portion of our indebtedness, including thenotes, on or before maturity, sell assets, reduce or delay capital investmentsor seek to raise additional capital. We may not be able to implement oneor more of these alternatives, on terms acceptable to us or at all. The termsof existing or future debt agreements may restrict us from adopting any ofthese alternatives. In addition, we cannot depend on additional capitalcontributions or other investments from our stockholders and affiliates. Thefailure to generate sufficient cash flow or to successfully achieve any ofthese alternatives could materially adversely affect the value of the exchangenotes and our ability to pay the amounts due under the exchange notes.

 

**Risks Related to Our Business**

 

***We rely on salesto U.S. Government entities. A loss of our contracts with the U.S. Governmentor a reduction of sales under those contracts would have a material adverseeffect on our business.***

 

Our sales are predominantly derived from threecontracts with the DSCP, which is responsible for the procurement of militaryfield rations for the DoD. Approximately 82.6% and 81.4% of our sales for theyears ended December 31, 2004 and December 31, 2005, respectively,were made directly or indirectly to the U.S. Government. Approximately 54.1%,23.7% and 3.7% of our sales for the year ended December 31, 2004 andapproximately 55.2%, 21.7% and 2.4% of our sales for the year ended December 31,2005 were derived from our MRE program contract, UGR-A program and Tray-packprogram, respectively. The

 

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loss of all or a substantial portion of our sales tothe U.S. Government would have a material adverse effect on our results ofoperations and cash flow.

 

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

 

We are subject to business risks peculiar to thedefense industry, including the ability of the U.S. Government to unilaterally:

 

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

 

•                  terminate existing contracts;

 

•                  reduce the value of existing contractsthrough partial termination; and

 

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

 

All of our U.S. Government contracts can beterminated by the U.S. Government either for its convenience or if we defaultunder the contract. Termination for convenience provisions provide only for ourrecovery of costs incurred or committed, settlement expenses and profit on thework completed prior to termination. Under termination for default provisions,the contractor is liable for excess costs incurred by the U.S. Government inprocuring undelivered items from another source.

 

The U.S. Government periodically reviews ourperformance on its contracts and, at its discretion, may audit the costsincurred by us with respect to its contracts. Based on the results of suchaudits, the U.S. Government may adjust our contract-related costs andfees, including allocated indirect costs. In addition, under U.S. Governmentpurchasing regulations, some of our costs, including most financing costs,amortization of goodwill, portions of research and development costs andcertain marketing expenses, may not be reimbursable. Further, as a U.S.Government contractor, we are subject to investigation, legal action andliabilities that would not apply if we were contracting with a non-governmentalpurchaser.

 

***Our strategydepends on continued outsourcing by our government and commercial customers.***

 

Our strategy to increase sales depends in part onthe continued outsourcing of products and programs by the U.S. Government andour commercial customers. If the U.S. Government or our commercial customersdecide to stop outsourcing products and programs or if they discontinueproducts and programs that they are currently outsourcing, it would have amaterial adverse effect on our results of operations and financial condition.

 

***A reduction inthe U.S. defense budget or a change in our relationship with the U.S.Government could have a material adverse effect on our business.***

 

The funding of defense programs competes withnon-defense spending by the U.S. Government. Budget decisions made by the U.S.Government are outside of our control and have long-term consequences for ourbusiness. A substantial shift in government defense spending to programs inwhich we are not involved or a material reduction in U.S. Government defensespending generally would have a material adverse effect on our results ofoperations and financial condition.

 

In addition, any significant disruption ordeterioration of our relationship with the U.S. Government would significantlyreduce our revenue. Our competitors continuously engage in efforts to expandtheir business relationships with the U.S. Government to our detriment and arelikely to continue their efforts in the future.

 

17

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***Governmentcontracts are subject to competitive bidding. If we are unable to successfullycompete in the bidding process or if we fail to receive renewal or follow-oncontracts, our results of operations will suffer.***

 

We obtain many of our U.S. Government contractsthrough sealed competitive bids, unless an exemption from full and opencompetition under federal procurement laws is applicable. Under the regulationsgoverning sealed bidding, the qualified bidder with the lowest price and theprice-related factors most advantageous to the U.S. Government is generallyawarded the contract. We may not win competitively awarded contracts andawarded contracts we do win may not be profitable. We are also subject torisks associated with the substantial time and effort required to prepare bidsand proposals for competitively awarded contracts that may not be awardedto us. In addition, our bids for the MRE contract have not been subject to fulland open competition and have been limited to us and two other suppliers. Ourability to continue to win a significant share of the MRE program award couldsuffer if the bids were subject to full and open competition.

 

Renewal and follow-on contracts are importantbecause our contracts are for fixed terms. These terms vary from shorter thanone year to over five years, particularly for contracts with options. Thetypical term of our contracts with the U.S. Government is between one and fiveyears. The loss of revenues from our possible failure to obtain renewal orfollow-on contracts may be significant because our U.S. Governmentcontracts account for a substantial portion of our revenues.

 

***Our fixed-pricecontracts could subject us to losses in the event that we have cost overruns.***

 

Approximately 59.7% and 58.9% of our net sales forthe years ended December 31, 2005 and December 31, 2004,respectively, were generated through fixed-price contracts with the U.S.Government. In a fixed-price contract, the price is not subject to adjustmentbased on cost incurred to perform the required work under the contract. Therefore,we fully absorb cost overruns on fixed-price contracts, thereby reducing ourprofit margin. Cost overruns may result in a loss. Further risksassociated with fixed-price contracts include the difficulty of estimatingcosts that are related to performance in accordance with contractspecifications and the possibility of obsolescence in connection with long-termprocurements. We may not be able to accurately estimate the costs of theingredients that we use to manufacture our products, as well as the materialswe use to process and package our products, because their prices have been, andwe expect them to continue to be, subject to volatility. Also, any failure toanticipate technical problems, estimate costs accurately or control costsduring performance of a contract can reduce our profitability. Underfixed-price contracts, we may not be able to pass price and cost increaseson to our customers, which could have an adverse effect on our financialresults.

 

***Our operatingresults depend on the U.S. Government’s demand for our food products and thatdemand can fluctuate significantly. Such fluctuations in demand may have amaterial adverse effect on our results of operations and financial condition.***

 

Our results of operations have fluctuated in thepast and may continue to fluctuate in the future as a result of a numberof factors, many of which are beyond our control. These factors may include:

 

•                  the termination of key U.S. Governmentcontracts;

 

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

 

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

 

In particular, there has been an increase in demandfor our military food products associated with U.S. military operations since September 11,2001. Our net sales and net income increased beginning in the fourth quarter of2002 and continued through 2005 as a result of the significant increase inmilitary demand

 

18

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due to U.S. operations in Iraq and ongoingoperations in Afghanistan as well as the use of our products in disaster reliefefforts both within the United States and abroad.

 

During 2005, orders for our military food productssignificantly increased relative to comparable periods in 2004. As a result,our net sales and net income for the year ended December 31, 2004 werematerially higher than for the year ended December 31, 2004.  We believe that the demand for our militaryfood products will decrease modestly as deployments of U.S. armed forces inAfghanistan and Iraqi decrease and that our post-war volumes under the newMRE-26-to-30 contract will return over time to more predictable and steadyvolume levels.  However, demand may notremain at current levels and fluctuations in the military’s demand for our foodproducts may have a material adverse effect on our results of operationsor financial condition.

 

Under our contracts with the DSCP, we may berequired to increase our production to specified agreed maximum levels in timesof military surge demand. We have taken significant measures to ensure thatsuch activity will not require us to curtail any of our commercial operations. Periodsof military surge production may have an adverse effect on our commercialproduction during such periods, which could materially harm our relationshipswith our commercial customers.

 

***Our backlog issubject to reduction and cancellation.***

 

Backlog represents products or services that ourcustomers have committed by contract to purchase from us and for which we havefirm orders and production schedules. A large portion of these commitments isterminable by the customer at will. Our total backlog as of December 31,2005 was $67.2 million. As of December 31, 2005, 70.5% and 29.5% ofour backlog was derived from our contracts with the DSCP and our commercialcontracts, respectively. Backlog is subject to fluctuations and is notnecessarily indicative of future sales. Moreover, cancellations of purchaseorders or reductions of product quantities in existing contracts couldsubstantially and materially reduce backlog and, consequently, future revenues.Our failure to replace canceled or reduced backlog could result in lowerrevenues.

 

***We have noredundant production facilities. Therefore, the loss of one of our facilitieswould materially adversely affect our production capability.***

 

Each of our discrete manufacturing operations occursat one of two facilities with no operating redundancy between the facilities. Inparticular, virtually all of our thermostabilization processing is conducted atour Cincinnati facility. Our leases for these sites expire in 2010. We may loseproduction capability if a natural or other disaster were to occur thataffected one of our significant facilities or if we were unable to renew anexpired lease for any such facility. The loss of either manufacturing facilitywould materially adversely affect our production capacity and could have amaterial adverse effect on our results of operations or financial condition. Ourefforts to consolidate our McAllen, Texas Assembly operations in the GreaterCincinnati Tri-state area could increase this risk.

 

***Governmentalregulation may have a negative impact on our business.***

 

Our operations and properties are subject toregulation by various government entities and agencies. As a producer of foodproducts, our operations are subject to production, packaging, quality,labeling and distribution standards. Our manufacturing, processing anddistribution facilities are also subject to various workplace regulations. Webelieve that our current compliance programs adequately address such concernsand that we are in substantial compliance with applicable laws and regulations.However, compliance with, or any violation of, current and future laws orregulations could require material expenditures or otherwise adversely affectour business and financial results.

 

19

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***Product recallscould have a material adverse effect on our business.***

 

Manufacturers, processors and distributors ofproducts in the food industry are sometimes subject to the recall of theirproducts for a variety of reasons, including for product defects, such asingredient contamination, packaging safety and inadequate labeling disclosure. Ifany of our products are recalled due to a product defect or for any otherreason, we could be required to incur the expense of the recall or the expense ofany resulting legal proceeding. Additionally, if one of our significantproducts were subject to recall, the image of that brand and our company couldbe harmed, which could have a material adverse effect on our business.

 

***Food-borneillness incidents could reduce our sales.***

 

Our internal controls and training may not befully effective in preventing all food-borne illnesses. Some food borne illnessincidents could be caused by third-party food suppliers and transportersoutside of our control. New pathogens resistant to our current precautions may developin the future, or diseases with long incubation periods could arise, that couldgive rise to claims or allegations on a retroactive basis. One or moreinstances of food-borne illness in one of our products could negatively affectour product sales, especially if highly publicized, even if it were laterdetermined that the illness was wrongly attributed to one of our products.

 

***Product liabilityclaims could have a material adverse effect on our business.***

 

We face an inherent risk of exposure to productliability claims if any of the products we sell cause injury or illness. Wehave obtained liability insurance for product liability claims. Insurance may notcontinue to be available at a reasonable cost, and any insurance that we obtainmay not be adequate to fully cover product liability claims against us. Wegenerally obtain contractual indemnification from parties supplying ourproducts, but this form of indemnification is limited, as a practicalmatter, to the creditworthiness and financial resources of the indemnifyingparty. If we do not have adequate insurance or contractual indemnificationavailable, losses associated with product liability claims could have amaterial adverse effect on our business, operating results and financialcondition.

 

***Our industry haslow profit margins and is sensitive to national and regional economicconditions and other factors.***

 

The foodservice industry is characterized byrelatively low profit margins. The prices at which we sell some of our productschange with the cost of the underlying products. As a result, our profit levelsmay be reduced during periods of decreased prices for some of ourproducts, even though our gross profit percentage on those products may remainrelatively constant. A reduction in the price of our products could have amaterial adverse effect on our business, operating results and financialcondition. The foodservice distribution industry is sensitive to national andregional economic conditions. Economic downturns may reduce consumerspending at the businesses and institutions that we supply. This reduction inspending could have an adverse impact on the demand for our commercial foodproducts and result in a material adverse effect on our operating results.

 

Our operating results also are particularlysensitive to, and may be adversely affected by, difficulty in collectingaccounts receivable, maintaining inventory control, and responding tocompetitive price pressures, severe weather conditions and unexpected increasesin fuel or other transportation-related costs. We cannot assure you that one ormore of these factors will not adversely affect future operating results.

 

***Veritas Capitalcontrols us and may have conflicts of interest with other holders of oursecurities, including the exchange notes.***

 

TWC Holding LLC, our direct parent, owns 100% of ourcommon stock. As a result, Veritas Capital Management, through our ParentCompany, is able to control all matters presented to our stockholders for

 

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approval, including election and removal of ourdirectors and change of control transactions. The Veritas Capital Fund II, L.P.controls the voting of the shares of our common stock held by our Parent Companyand, in turn, is controlled by Veritas Capital Management. Veritas CapitalManagement, some members of which are members of our board of directors, hassignificant influence on our overall operations and strategy. We cannot assureyou that the interests of our Parent Company, The Veritas Capital Fund II,L.P., Veritas Capital Management or any of their affiliates will coincide withthe interests of the holders of our other securities. To the extent thatconflicts of interest may arise, our Parent Company, The Veritas CapitalFund II, L.P., Veritas Capital Management or any of their affiliates may resolvethose conflicts in a manner adverse to us or to you or other holders of oursecurities.

 

***We depend on theservices of key executives and technical and other personnel, the loss of whomcould materially harm our business or reduce our operational effectiveness.***

 

Some of our senior executives are important to oursuccess because they have been instrumental in setting our strategic direction,operating our business, identifying, recruiting and training key personnel,identifying opportunities and arranging necessary financing. Losing theservices of any of these individuals could adversely affect our business untila suitable replacement could be found. We believe that they could not quicklybe replaced with executives of equal experience and capabilities. Our ChiefExecutive Officer is the only executive bound by an employment agreement withus, our other executives are not presently bound by employment agreements withus. We do not maintain key person life insurance policies on any of ourexecutives. See Part III, Item 10, “Directors and Executive Officers ofthe Registrant.”

 

There is a continuing demand for qualified technicalpersonnel, and we believe that our future growth and success will depend uponour ability to attract, train and retain such personnel. Competition forpersonnel in our industry is intense, and there are a limited number of personswith knowledge of, and experience in, this industry. Although we currentlyexperience relatively low rates of turnover for our technical personnel, therate of turnover may increase in the future. We rely on a substantialnumber of temporary employees on a continuing basis at our McAllen, Texasfacilities, and during surge production periods at our Cincinnati, Ohiofacilities. An inability to attract or maintain a sufficient number oftechnical or temporary personnel could have a material adverse effect on ourcontract performance or on our ability to capitalize on market opportunities.

 

***Our failure toenforce and maintain our trademarks could adversely affect our ability toestablish and maintain brand awareness.***

 

We have registered the names Homestyle Express®,Great Food ExpressTM andAsian Style SelectionsTM andcertain other names used by our products as trademarks or service marks withthe U.S. Patent and Trademark Office. The measures we have taken to protect ourintellectual property in the United States and foreign countries may notbe adequate. In addition, the laws of some foreign countries do not protectintellectual property rights to the same extent as the laws of the UnitedStates. If our efforts to protect our intellectual property are not adequate,or if any third party misappropriates or infringes on our intellectualproperty, either in print or on the Internet, the value of our brands may beharmed, which could have a material adverse effect on our business, includingthe failure of our brands and branded products to achieve and maintain marketacceptance.

 

***Environmentallaws and regulations may subject us to significant costs and liabilities.***

 

Our operations include (and those of past operatorsat our sites have included) the use, generation and disposal of hazardousmaterials. We are subject to various U.S. federal, state and local laws andregulations relating to the protection of the environment, including thosegoverning the discharge of pollutants into the air and water, the managementand disposal of hazardous substances and wastes, the cleanup of contaminatedsites and the maintenance of a safe workplace. We could incur substantialcosts, including cleanup costs, civil or criminal fines or sanctions andthird-party claims for property damage or personal injury, as a result ofviolations of or liabilities under environmental laws and regulations or thenon-compliance with the environmental permits required at our facilities.

 

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These laws, regulations and permits also couldrequire the installation of costly pollution control equipment or operationalchanges to limit pollution emissions or decrease the likelihood of accidentalreleases of hazardous substances. In addition, new laws and regulations,stricter enforcement of existing laws and regulations, the discovery ofpreviously unknown contamination at our or other sites or the imposition of newcleanup requirements could require us to incur future costs that would have anegative effect on our results of operations or cash flow.

 

**Item 1B:   Unresolved Staff Comments**

 

None.

 

## **Item 2:   Properties**

 

We lease all of the real property that we use inconducting our business. The following table presents certain information onour operating properties as of December 31, 2005:

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

 

Management considers our leased properties to beadequate for our needs and believes that all of our leased properties are wellmaintained and in good condition. In addition to these properties, we haverented space from time to time at various third party storage facilities on ashort-term and as needed basis. Management also believes that there areadequate facilities available for lease or rent in the event that either theproductive capacities of our manufacturing facilities need to be expanded or acurrent lease of a facility expires.

 

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The lenders under our credit facility have asecurity interest and lien in our leasehold interests in the real property thatwe lease.

 

## **Item 3:   LegalProceedings**

 

We are a defendant in various legal actions arisingin the normal course of business, the outcomes of which, in the opinion ofmanagement, neither individually nor in the aggregate are likely to result in amaterial adverse effect on our business, results of operations, financialposition or cash flows.

 

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

 

There were no matters submitted to a vote ofsecurity holders during the fourth quarter of fiscal year 2005.

 

**PART II.**

 

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

 

All of our common stock is held by our ParentCompany, so there is no trading market for our common stock. For moreinformation about the ownership of our Parent Company, see Part III, Item12, “Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.”

 

We have not paid any dividend on our common stock todate. Our working capital facility and the notes contain restrictions on ourability to pay dividends on our common stock. See Part II, Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidityand Capital Resources—Long Term Debt Expenditures,” and Note 6 to our financialstatements. The payment of dividends on our common stock is also subject to therequirements of Delaware law. We have not paid any dividends on our commonstock since our inception in November 2003.

 

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

 

The following table presents the selectedconsolidated financial data of The Wornick Company, a Nevada corporation (the “Predecessor”),and its consolidated subsidiaries as of and for each of the three fiscal yearsended December 31, 2001, 2002 and 2003 and the six months ended June 30,2004. The selected consolidated financial data as of December 31, 2002 and2003, and for the years ended December 31, 2001, 2002 and 2003 and the sixmonths ended June 30, 2004 have been derived from the Predecessor’saudited historical financial statements for the respective periods.

 

The table also includes the selected consolidatedfinancial data of The Wornick Company, a Delaware corporation (the “Successor”)and its consolidated subsidiaries as of and for the six months ended December 31,2004 and for the fiscal year ended December 31, 2005.  The selected consolidated financial data ofthe Successor as of December 31, 2005 and 2004 and for the year ended December 31,2005 and for the period from July 1, 2004 through December 31, 2004 havebeen derived from, and should be read together with, the Successor’s auditedfinancial statements for such period.

 

The selected consolidated financial data set forthbelow are not necessarily indicative of the results of future operations andshould be read together with Part II, Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” and ourConsolidated Financial Statements.

 

As a result of the Transactions and relatedfinancings, the historical consolidated financial data of the Predecessor may notbe comparable to the Successor’s consolidated financial data. Most notably, theliquidity position of the Successor is substantially different than that of thePredecessor, including the overall level of debt and resulting amount ofinterest expense in fiscal periods subsequent to June 30, 2004.

 

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| ** **                                    | ** ** | **Predecessor**                                        | ** ** | **Successor**         | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | ** **                                             | ** ** | **Six-Month**         | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **                                             | ** ** | **Six-Month**         | ** ** | **Period Ended** | ** ** | **Fiscal Year Ended** | ** ** |
| ** **                                    | ** ** | **Fiscal Year Ended December 31,** | ** ** | **Period Ended** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| **(dollars in thousands)**          | ** ** | **2001**                                               | ** ** | **2002**              | ** ** | **2003** | ** ** | **June 30, 2004** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Income  Statement Data:**                   |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Net sales                                     |       | $                                                      | 94,191     |                  | $          | 130,434 |   | $ | 318,370 |   | $ | 80,924 |   | $ | 100,381 |   | $ | 257,878 |   |
| Cost of  sales                                |       | 77,419                                                 |       | 108,418               |       | 265,447 |   | 67,753 |   | 83,308 |   | 210,897 |   |
|                                          |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Gross profit                                  |       | 16,772                                                 |       | 22,016                |       | 52,923 |   | 13,171 |   | 17,073 |   | 46,981 |   |
| Selling,  general and administrative expenses |       | 11,598                                                 |       | 21,043                |       | 27,008 |   | 12,459 |   | 9,072 |   | 23,339 |   |
|                                          |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Operating  profit                             |       | 5,174                                                  |       | 973                   |       | 25,915 |   | 712 |   | 8,001 |   | 23,643 |   |
| Other income  (expense):                      |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Interest  expense                             |       | (1,012                                                 | )          | (671                  | )          | (537 | ) | (100 | ) | (7,151 | ) | (14,402 | ) |
| Interest  income                              |       | 132                                                    |       | 99                    |       | 244 |   | 507 |   | 87 |   | 210 |   |
| Other income                                  |       | 781                                                    |       | 849                   |       | 980 |   | 369 |   | 4 |   | (201 | ) |
|                                          |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Total other  income (expense)                 |       | (99                                                    | )          | 277                   |       | 687 |   | 776 |   | (7,060 | ) | (14,393 | ) |
|                                          |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Income before  income taxes                   |       | 5,076                                                  |       | 1,250                 |       | 26,602 |   | 1,488 |   | 941 |   | 9,249 |   |
| Income tax  expense                           |       | 278                                                    |       | (31                   | )          | 439 |   | 41 |   | 964 |   | 2,633 |   |
|                                          |       |                                                   |       |                  |       |   |   |   |   |   |   |   |   |
| Net income                                    |       | $                                                      | 4,797      |                  | $          | 1,281 |   | $ | 26,163 |   | $ | 1,447 |   | $ | (23 | ) | $ | 6,617 |   |

 

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| ** **                                     | ** ** | **Predecessor**               | ** ** | **Successor**                 | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                     | ** ** | **At December 31,** | ** ** | **At December 31,** | ** ** |
| **(dollars in thousands)**           | ** ** | **2001**                      | ** ** | **2002**                      | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Selected balance sheet data** |       |                          |       |                          |       |   |   |   |   |   |   |
| Cash and  cash equivalents                     |       | $                             | 2,264      |                          | $          | 1,042 |   | $ | 5,291 |   | $ | 3,289 |   | 17,331 |   |
| Investments                                    |       | 929                           |       | 3,000                         |       | 8,993 |   | — |   | — |   |
| Property,  plant and equipment, net            |       | 10,448                        |       | 14,670                        |       | 21,718 |   | 32,794 |   | 42,914 |   |
| Total assets                                   |       | 43,407                        |       | 63,698                        |       | 86,709 |   | 180,522 |   | 209,171 |   |
|                                           |       |                          |       |                          |       |   |   |   |   |   |   |
| Total debt  (excluding book overdrafts)        |       | 14,628                        |       | 18,175                        |       | 4,993 |   | 125,000 |   | 125,000 |   |
| Total equity                                   |       | 17,677                        |       | 23,499                        |       | 57,155 |   | 37,623 |   | 44,326 |   |
|                                                |            |                               |            |                               |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | **Predecessor**                                        | ** ** | **Successor**  | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------|------------|----------------|------------|
| ** **                                     | ** ** | ** **                                             | ** ** | **Six-Month**  | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | ** **                                             | ** ** | ** **     | ** ** | ** ** | ** ** | **Six-Month** | ** ** | **Period** | ** ** | **Fiscal Year** | ** ** |
| ** **                                     | ** ** | ** **                                             | ** ** | ** **     | ** ** | ** ** | ** ** | **Period** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                     | ** ** | **Fiscal Year Ended December 31,** | ** ** | **Ended June** | ** ** | **December** | ** ** | **December 31,** | ** ** |
| **(dollars in thousands)**           | ** ** | **2001**                                               | ** ** | **2002**       | ** ** | **2003** | ** ** | **30, 2004** | ** ** | **31, 2004** | ** ** | **2005** | ** ** |
| **Other  financial data:**                     |       |                                                   |       |           |       |   |   |   |   |   |   |   |   |
| Depreciation  of property, plant and equipment |       | $                                                      | 1,223      |           | $          | 1,632 |   | $ | 2,300 |   | $ | 1,387 |   | $ | 1,756 |   | 3,926 |   |
| Goodwill amortization                          |       | 775                                                    |       | —         |       | — |   | — |   | — |   | — |   |
| Captial  expenditures                          |       | 6,225                                                  |       | 6,046          |       | 12,526 |   | 2,383 |   | 4,301 |   | 13,612 |   |
| Net cash  provided by (used in):               |       |                                                   |       |           |       |   |   |   |   |   |   |   |   |
| Operating  activities                          |       | 6,894                                                  |       | 2,933          |       | 34,552 |   | (472 | ) | 10,125 |   | 27,654 |   |
| Investing  activities                          |       | (6,030                                                 | )          | (7,863         | )          | (17,708 | ) | (11,792 | ) | (169,336 | ) | 13,612 |   |
| Financing  activities                          |       | (316                                                   | )          | 3,708          |       | (12,595 | ) | 8,314 |   | 162,500 |   | — |   |
| EBITDA (a)                                     |       | 7,953                                                  |       | 3,455          |       | 29,195 |   | 2,468 |   | 12,108 |   | 32,062 |   |
| Adjusted  EBITDA (a)                           |       | 10,323                                                 |       | 15,058         |       | 43,714 |   | 10,473 |   | 14,532 |   | 32,149 |   |
|                                                |            |                                                        |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)          The indenture governing the notes containsmaterial covenants that require the calculation of “Consolidated EBITDA,” whichwe refer to herein as Adjusted EBITDA. We define adjusted EBITDA as EBITDAadjusted to exclude (i) non-recurring charges related to inventorystep-up, (ii) non-recurring transaction expenses attributable to theacquisition of our business from the Predecessor Company on June 30, 2004and (iii) non-cash ESOP charges and other stock-based compensationexpenses incurred by the Predecessor Company and the non-cash compensationexpense relating to the grant of Class B interests in our parent, TWCHolding LLC, to certain of our officers and directors. We define EBITDA as netincome (loss) before income tax expense (benefit), interest expense, netdepreciation of property and equipment and amortization of intangibles. Ourmanagement believes that adjusted EBITDA is useful to investors in evaluatingour operating performance because EBITDA, which eliminates the effects of incometaxes, financing and the accounting effects of capital spending, each of which may varyfor different companies for reasons unrelated to overall operating performance,and the adjustments made in arriving at adjusted EBITDA, provide informationregarding our ability to service and/or incur debt. EBITDA and adjusted EBITDAare not presentations made in accordance with U.S. generally acceptedaccounting principles, or “U.S. GAAP.”  Accordingly, when analyzing ouroperating performance, investors should not consider 

 

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EBITDA or adjusted EBITDA inisolation or as a substitute for net income, cash flows from operatingactivities or other income statement or cash flow statement data prepared inaccordance with U.S. GAAP. Our calculation of adjusted EBITDA is notnecessarily comparable to that of other similarly titled measures reported byother companies. The calculation of EBITDA and adjusted EBITDA is shown below:

 
| ** **                                                       | ** ** | **Predecessor**                                        | ** ** | **Successor**     | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------|------------|
| ** **                                                       | ** ** | ** **                                             | ** ** | ** **        | ** ** | ** ** | ** ** | **Six-Month** | ** ** | **Six-Month** | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | ** **                                             | ** ** | ** **        | ** ** | ** ** | ** ** | **Period Ended** | ** ** | **Period Ended** | ** ** | **Fiscal Year Ended** | ** ** |
| ** **                                                       | ** ** | **Fiscal Year Ended December 31,** | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| **(dollars in thousands)**                             | ** ** | **2001**                                               | ** ** | **2002**          | ** ** | **2003** | ** ** | **2004** | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                             |       |                                                   |       |              |       |   |   |   |   |   |   |   |   |
| Net income                                                       |       | $                                                      | 4,797      |              | $          | 1,281 |   | $ | 26,163 |   | $ | 1,447 |   | $ | (23 | ) | $ | 6,617 |   |
| Interest  expense (income), net                                  |       | 880                                                    |       | 572               |       | 293 |   | (407 | ) | 7,064 |   | 14,192 |   |
| Income tax  expense (benefit)                                    |       | 278                                                    |       | (31               | )          | 439 |   | 41 |   | 964 |   | 2,633 |   |
| Depreciation  of property and Equipment                          |       | 1,223                                                  |       | 1,632             |       | 2,300 |   | 1,387 |   | 1,756 |   | 3,926 |   |
| Amortization  of intangibles                                     |       | 775                                                    |       | —            |       | — |   | — |   | 2,347 |   | 4,695 |   |
| EBITDA                                                           |       | 7,953                                                  |       | 3,454             |       | 29,195 |   | 2,468 |   | 12,108 |   | 32,062 |   |
| Non-recurring  charges related to inventory step-up              |       | —                                                 |       | —            |       | — |   | — |   | 1,767 |   | — |   |
| Non-recurring  transaction expenses                              |       | —                                                 |       | —            |       | 829 |   | 1,681 |   | 511 |   | — |   |
| Non-cash  charges relating to ESOT compensation expenses         |       | 1,576                                                  |       | 4,541             |       | 7,493 |   | 2,344 |   | — |   | — |   |
| Non-cash  charges relating to stock option compensation expenses |       | 794                                                    |       | 7,063             |       | 5,364 |   | 713 |   | — |   | — |   |
| Other stock  based compensation expenses                         |       | —                                                 |       | —            |       | 833 |   | 3,267 |   | 146 |   | 86 |   |
| Adjusted  EBITDA                                                 |       | $                                                      | 10,323     |              | $          | 15,058 |   | $ | 43,714 |   | $ | 10,473 |   | $ | 14,532 |   | $ | 32,149 |   |

 

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## **Item7:   Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

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

 

As a result of the acquisition transaction asdescribed in Note 2 to our Consolidated Financial Statements and elsewhere inthis filing we have combined the results of the Predecessor for the six monthsended June 30, 2004 and the Company for the six months ended December 31,2004 in the discussion below in order to provide investors more meaningfulperiod-to-period comparisons. However, as a result of the acquisitiontransaction and related financings, the historical consolidated financial andother data of the Predecessor may not be comparable to the Company’sfinancial data. Most notably, the liquidity position of the Company issubstantially different than that of the Predecessor, including the overalllevel of debt and resulting amount of interest expense in fiscal periodssubsequent to June 30, 2004. In addition, as a result of the acquisitiontransaction, a new basis was established as of July 1, 2004 for each ofour assets. Accordingly, the combined pro forma financial information for thetwelve months ended December 31, 2004 combines results of operations undertwo separate bases of accounting, the Predecessor’s basis and the Successor’sbasis.

 

We have combined the audited financial informationfor the six months ended June 30, 2004 of the Predecessor and the sixmonths ended December 31, 2004 of the Successor on an unaudited pro formabasis in which we combined the respective audited financial information asoriginally presented. The pro forma information provided in the table below in “—Resultsof Operations” does not purport to represent what our consolidated results ofoperations would have been if the Company had actually been formed on January 1,2004, nor have we made any attempt to either include or exclude expenses orincome that would have resulted had the acquisition actually occurred on January 1,2004.

 

**Executive Overview**

 

We are a leading supplier of individual and groupmilitary field rations to the DoD. We specialize in the production, packagingand distribution of extended shelf-life, shelf stable and frozen foods inflexible pouches and semi-rigid containers. With over 30 years of experience inthe food manufacturing and food processing businesses, we believe we have areputation for superior quality and service in developing and producing uniquemeal solutions for the military and for the consumer and foodservice markets.We are a primary supplier to the DoD of MREs, UGR-As and the polymeric traysused in the UGR-H&S program. Some of our other customers include Delmonte,Gerber, Kraft, Quaker and the Canadian Ministry of Defense.

 

The majority of our net sales are derived fromcontracts with the DoD, through the DSCP. Sales to the U.S. Governmentaccounted for approximately 89.4% for the year ended December 31, 2003, 82.6%for the pro forma year ended December 31, 2004, and 81.4% for the yearended December 31, 2005. Our U.S. Government receivables at December 31,2004 and 2005, accounted for approximately 73.1% and 72.9%, respectively, ofour accounts receivable.

 

Sales to the military depend to a significant extenton troop deployment levels, mobilization strategies, training exerciseactivities and the general level of the DoD budget. In 2003, there was asignificant increase in military demand due to U.S. troop deployment in Iraq,Afghanistan and elsewhere, and this increase resulted in a significant increasein our net sales for 2003. During 2004, orders for our military food productssignificantly decreased relative to comparable periods in 2003. During 2005,significant weather driven relief events within the United Stated contributedto stronger than expected demand for our

 

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MRE products in the fourth quarter. We believe thatthe demand for our military food products will decrease modestly as deploymentsof U.S. armed forces in Afghanistan and Iraqi decrease and that our post-warvolumes under the new MRE-26-to-30 contract will return over time to morepredictable and steady volume levels. However, demand may not remain atcurrent levels or fluctuations in the military’s demand for our food products may havea material adverse effect on our results of operations or financial condition. SeePart I, Item 1, “Business—Industry Outlook—Military.”

 

We are focused on maintaining our position as theonly supplier to participate in all of the U.S. military’s major field feedingprograms (MRE, UGR-A and UGR-H&S), and we seek to increase ourparticipation in these programs as the DSCP continues to outsource productionactivities that are currently performed by the U.S. Government. Our U.S.Government contracts typically fall into two categories, fixed-price contractsand indefinite delivery, indefinite quantity contracts. In a fixed-pricecontract, the price is based on a pre-determined rate and is not subject toadjustment based on the actual costs incurred, except for key commodity itemswhich are priced according to industry indexes. Although our fixed-pricecontracts generally permit us to keep profits if costs are less than projected,we bear the risk that increased or unexpected costs may reduce profit orcause us to sustain losses on these contracts. In fiscal 2005, we had twoprimary fixed-price contracts, one for MREs and one for Tray-Packs. We expectto complete deliveries against our current MRE-25 contract during April 2006and we anticipate that the new five year MRE-26 award will be announced duringthe same period. Our indefinite delivery, indefinite quantity contract for theUGR-A modules calls for delivery on an order-by-order basis. Every week, we andother contractors submit updated component pricing to the DSCP for the nextweek to adjust for commercial component price fluctuations. This componentprice information is used to determine the price for all UGR-As ordered duringthe following weekly period. This component pricing is subject to retroactiveaudit adjustment by the DoD, however we believe the magnitude of any suchadjustment is insignificant based primarily on our pricing policies with theDoD as well as the results of prior DoD audits. For the year ended December 31,2003 and, on a pro forma basis, 2004, and for the year ended December 31,2005 we generated approximately 49.5%, 58.9% and 59.7% of our net sales fromfixed-price contracts and approximately 39.9%, 23.7% and 21.7% from theindefinite delivery, indefinite quantity contract, respectively.

 

In 1998, we began to expand our commercial business.As part of our commercial expansion, we have established co-manufacturingrelationships with leading branded companies such as Delmonte, Gerber, Kraftand Quaker for a variety of extended shelf-life products. See Part I, Item1, “Business—Industry Outlook—Commercial.”

 

In 2000, we launched our own line of consumerbranded food, Homestyle Express. Our Homestyle Express brand was positioned inthe consumer retail channel and in distribution with accounts such as Kroger,Walgreen, Publix, and 7-Eleven. While consumer feedback on the HomestyleExpress brand was favorable, we were not generating the sales and profitabilitywe initially targeted. As such, we made the strategic decision to discontinuethese product lines during fiscal year 2005. During fiscal year 2005, weincurred net losses on our sales of Homestyle Express of approximately $539,000.We anticipate no further charges related to the discontinuance of this productin fiscal year 2006.

 

An increasing amount of our revenues is derived fromco-manufacturing contracts with leading branded food companies. Revenuesderived from our co-manufacturing contracts represented approximately 8.0%,12.3% and 15.7% of our revenues for the year ended December 31, 2003, on apro forma basis, 2004, and for the year ended December 31, 2005,respectively. Receivables from commercial co-manufacturing customers accountedfor approximately 18.5% and 18.3% of trade accounts receivable as of December 31,2004 and 2005, respectively. Our co-manufacturing contracts are performed underseveral different pricing arrangements, ranging from “toll only,” under whichwe are responsible for labor, overhead and profits, but not materials, tofully-costed contracts under which we also purchase the materials.

 

We continually seek opportunities to use ourtechnologies and experience to partner with established branded food companiesin new co-manufacturing arrangements. We are in the early stages of co-manufacturingdiscussions with some of the world’s largest branded food companies and believethat we are well-positioned to secure contracts in connection with several of theseopportunities. Most of our

 

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co-manufacturing contracts include a capitalcomponent through which the customer funds a portion of the capital required tosupport the related product. Under these arrangements, although we provide theinitial financing (or leasing) for the equipment acquisition, the customer isobligated to reimburse us for up to 90% of the total invested capital (or leasecost) over the course of the initial term of the supply agreement which istypically paid over three to five years. For agreements where equipment ispurchased, we own all of the equipment acquired under such agreements, orretain the rights to purchase the equipment at the end of the lease at fairmarket value. If a product is discontinued, the customer is still required topay the entire balance of the capital commitment. If we do not use the entirecapacity of the equipment to supply our co-manufacturing customer, we have theright to use the equipment in our other businesses.

 

In evaluating our financial condition and operatingperformance, our senior management focuses on net income, cash flow, salesgrowth, EBITDA and adjusted EBITDA. Continued growth of our net income and cashflow will depend on improving operating efficiencies, managing capitalexpenditures and increasing our net sales. Our future military sales growthwill depend on our ability to increase our penetration in existing programs andby expanding our sales to include activities that are newly outsourced by theU.S. Government. In addition, our commercial sales growth will depend on ourcontinued development of our co-manufacturing relationships and expansion intoother niche markets. Over the long term, we intend to continue to increase thepercentage of our sales attributable to our commercial business. Our managementbelieves that adjusted EBITDA is useful to investors in evaluating ouroperating performance because EBITDA, which eliminates the effects of incometaxes, financing and the accounting effects of capital spending, each of which may varyfor different companies for reasons unrelated to overall operating performance,and the adjustments made in arriving at adjusted EBITDA, provide informationregarding our ability to service and/or incur debt. Furthermore, the indenturegoverning the notes contains covenants based on adjusted EBITDA. For adiscussion of EBITDA and adjusted EBITDA, see Note (a) to Part II,Item 6, “Selected Financial Data.”

 

**Critical Accounting Policies**

 

The following significant accounting policies affectthe judgments, estimates and assumptions used in the preparation of ourconsolidated financial statements. These critical accounting policies are morefully described in Note 3 to our consolidated financial statements.

 

*Revenue Recognition*. We recognize revenue from product saleswhen title and risk of loss transfers to the customer, which is generally uponshipment. We record estimated discounts as a reduction in revenue in the sameperiod revenue is recognized based on historical experience.

 

Our U.S. Government contracts typically fall intotwo categories, fixed-price contracts and indefinite delivery, indefinitequantity contracts. In a fixed-price contract, the price is based on apre-determined rate and is not subject to adjustment. Indefinite delivery,indefinite quantity contracts are subject to component pricing . This componentpricing is subject to retroactive audit adjustment by the Department of Defense.The magnitude of any such adjustment has historically been immaterial.

 

*Accounts Receivable*. We maintain an allowance for doubtfulaccounts to reflect an estimate of the uncollectibility of accounts receivablebased on past collection history and, when applicable, the identification ofspecific potential collection risks. If the financial condition of ourcustomers were to deteriorate beyond the estimates resulting in our inabilityto collect payment, we may be required to increase the allowance fordoubtful accounts.

 

*Inventories*. Inventories are stated at the lower of costor market, with cost being determined using the first-in, first-out, or “FIFO”method. Costs included in inventories consist of materials, labor, and fixedand variable manufacturing overhead which are related to the purchase andproduction of inventories. We maintain allowances, where applicable, forpotential slow-moving or obsolete inventory based on historical and currenttrends. Changes in market conditions, our customer base or other factors may requireadditional allowances.

 

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

 

We also periodically reassess the estimatedremaining useful lives of our long-lived assets. Changes to estimated usefullives would impact the amount of depreciation and amortization expense recordedin earnings in the relevant period.

 

*Stock Option Plans*. As permitted by the Statement of FinancialAccounting Standard (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation,” we have elected to apply the provision of Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” (“OpinionNo. 25”), in recognizing costs associated with our stock option plans.Under Opinion No. 25, compensation is measured as the difference betweenthe option’s exercise price and the fair value of the underlying shares at themeasurement date and subsequent changes in the fair value of the underlyingshares through the date the option is exercised or otherwise settled. Themeasurement date is the first date on which both the number of shares subjectto the option and the option exercise price are known. All of our optionarrangements are compensatory. The related compensation expense has beendetermined based upon the estimated fair value of our common stock.

 

*Income Taxes*. The Predecessor had elected to be taxed asa Sub-Chapter S corporation for federal income tax purposes. The Successor hasnot made this election and will be subject to federal income taxes. For statetax purposes, income taxes were accounted for under the asset and liabilitymethod during 2002 and 2001. Beginning in 2003, the Predecessor was no longersubject to state income taxes.

 

Deferred tax assets and liabilities were recognizedfor the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax basis and operating loss and tax credit carryforwards.Deferred tax assets and liabilities were measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax status or tax rates is recognized inincome in the period that includes the enactment date. We review these deferredtax assets periodically and record valuation allowances as deemed necessary.

 

*Fair Value of FinancialInstruments*. Therecorded values of financial instruments, including accounts receivable, otherassets, and accounts payable, approximate fair value due to their shortmaturity. The carrying value of the revolving line of credit approximates fairvalue due to its variable interest rate. The recorded value of the long-termdebt approximates fair value based on borrowing rates currently available to usfor financing arrangements with similar terms and average maturities.

 

*Goodwill*. Subsequent to January 1, 2002,goodwill is no longer amortized. The carrying value of goodwill is tested forimpairment at least annually. The recoverability of unamortized goodwill isbased upon the fair value which is determined by using a discounted cash flowanalysis, which is consistent with how we determine the fair value of ourcommon stock for our stock option plans and other such compensationarrangements.

 

In connection with determining an estimated fairvalue, we must make significant assumptions, including the expected annualgrowth rate, projected future cash flows (including timing), discount ratesreflecting the inherent risk in future cash flows, market comparisons andrecent transactions. If these estimates or 

 

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their related assumptions change in the future, we may berequired to record goodwill impairment charges in the future.

 

**Results of Operations**

 

The following pro forma table summarizes ourhistorical operations for the fiscal years ended December 31, 2003, thepro forma year ended December 31, 2004, and the fiscal year ended December 31,2005:

 
| ** **                                    | ** ** | **Predecessor**                   | ** ** | **Successor**               | ** ** | ** **                 | ** ** | **Successor**                     | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|----------------------------|------------|-----------------------------------|------------|
| ** **                                    | ** ** | ** **                        | ** ** | **Six-Month Period**   | ** ** | **Six-Month Period**  | ** ** | **Pro Forma**                | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Year ended December** | ** ** | **Ended**                   | ** ** | **Ended**                  | ** ** | **Year Ended December** | ** ** | **Year Ended December** | ** ** |
| **(dollars in thousands)**          | ** ** | **31, 2003**                 | ** ** | **June 30, 2004** | ** ** | **December 31, 2004** | ** ** | **31, 2004**                 | ** ** | **31, 2005** | ** ** |
| ** **                                    | ** ** | ** **                        | ** ** | ** **                  | ** ** | ** **                 | ** ** | **(Unaudited)**                   | ** ** | ** ** | ** ** |
| **Income  statement data:**                   |       |                              |       |                        |       |                       |       |                              |       |   |   |
| Net sales                                     |       | $                                 | 318,370    |                        | $          | 80,924                     |       | $                                 | 100,381    |   | $ | 181,305 |   | $ | 257,878 |   |
|                                          |       |                              |       |                        |       |                       |       |                              |       |   |   |
| Cost of  sales                                |       | 265,447                           |       | 67,753                      |       | 83,308                     |       | 151,061                           |       | 210,897 |   |
| Gross profit                                  |       | 52,923                            |       | 13,171                      |       | 17,073                     |       | 30,244                            |       | 46,981 |   |
| Selling,  general and administrative expenses |       | 27,008                            |       | 12,459                      |       | 9,072                      |       | 21,531                            |       | 23,339 |   |
| Operating  profit                             |       | 25,915                            |       | 712                         |       | 8,001                      |       | 8,713                             |       | 23,643 |   |
| Other income  (expense):                      |       |                              |       |                        |       |                       |       |                              |       |   |   |
| Interest  expense                             |       | (537                              | )          | (100                        | )          | (7,151                     | )          | (7,251                            | )          | (14,402 | ) |
| Interest  income                              |       | 244                               |       | 507                         |       | 87                         |       | 594                               |       | 210 |   |
| Other  income, net                            |       | 980                               |       | 369                         |       | 4                          |       | 373                               |       | (201 | ) |
| Total other  income (expense)                 |       | 687                               |       | 776                         |       | (7,060                     | )          | (6,284                            | )          | (14,393 | ) |
| Income  before income taxes                   |       | 26,602                            |       | 1,488                       |       | 941                        |       | 2,429                             |       | 9,249 |   |
| Income tax  (income) expense                  |       | 439                               |       | 41                          |       | 964                        |       | 1,005                             |       | 2,633 |   |
| Net  income(loss)                             |       | $                                 | 26,163     |                        | $          | 1,447                      |       | $                                 | (23        | ) | $ | 1,424 |   | $ | 6,617 |   |

 

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***Comparison of thefiscal year ended December 31, 2005 to the twelve months ended December 31,2004, on a pro forma basis***

 

*NetSales.*Our net sales for the fiscal year ended December 31,2005 were $257.9 million representing an increase of $76.6 million or 42.2%,compared to net sales of $181.3 million for the pro forma year ended December 31,2004. The increase in net sales resulted primarily from increased sales to theDepartment of Defense of approximately $60.2 million and increased sales of ourco-manufactured products of approximately $18.1 million. The increase in DoDsales was driven by higher Meals Ready-to-Eat (MRE) sales of approximately$44.3 million which resulted from MRE surge sales primarily occurring in thefirst and fourth quarters of fiscal 2005, increased sales of Unitized GroupRation –A (URG-A) sales of approximately $13.2 million primarily in support ofmilitary operations Outside the Continental United States (OCONUS) and increasedother military sales of approximately $3.1 million primarily in support ofHumanitarian causes associated with Hurricane Katrina and fiscal 2005 earthquakerelief efforts in Pakistan. The increase in co-manufacturing sales resulted fromincreased sales to existing co-manufacturing customers Kraft and Gerber ofapproximately $4.8 million and approximately $14.3 million in sales to new co-manufacturingcustomers, Quaker, Keefe, Delmonte and our other co-manufacturing customeradded during fiscal 2005. Increases in military and co-manufacturing sales werepartially offset by lower sales in our specialty and other product sales ofapproximately $1.7 million.

 

*GrossProfit*. Our gross profit for the fiscal year ended December 31,2005 was approximately $47.0 million representing and increase of $16.7 millionor 55.3%, as compared to the pro forma twelve months ended December 31,2004 gross profit of approximately $30.2 million. Our gross profit as apercentage of sales was approximately 18.2% and 16.7% for the year ended December 31,2005 and pro forma twelve month period ended December 31, 2004,respectively. The increase in gross profit was driven by approximately $13.0million associated with DoD sales which consisted of higher pricing on MRE-26base sales which began in the second quarter of fiscal 2006 as compared toMRE-25 pricing for add-on sales in fiscal year 2005 as well as higher volumesales due to surge orders which occurred in the first and fourth quarters of2006. In addition to the effect of the MRE sales noted above, contributing tothe higher DoD gross profit was a significantly higher volume of UGR-A ordersin fiscal 2005 as compared to 2004, primarily related to OCONUS orders ofapproximately $13.2 million. Co-manufacturing sales also contributedapproximately $3.7 million more in gross profit in fiscal 2005 as compared tofiscal 2004 due to higher volume sales to existing co-manufacturing customersand the addition of several new customers that did not exist in fiscal 2004. Theseincreases in gross profit were partially offset by specialty and other saleslosses that were not significant.

 

*Selling,General and Administrative Expenses.*Our selling,general and administrative expenses for the fiscal year ended December 31,2005 was approximately $23.3 million representing an increase of $1.8 millionor 8.4% as compared to selling, general and administrative expenses ofapproximately $21.5 million for the pro forma twelve months ended December 31,2004. The increase in selling, general and administrative expenses was largelyattributable to expenditures on the corporate facility build-out, professionaland legal consulting fees and cost attributable to additional hiring ofcorporate and operational personnel to support future growth which occurred inthe second half of fiscal 2005.

 

*OperatingProfit.*Our profit from operations for the year ended December 31,2005 was approximately $23.6 million, representing an increase of approximately$14.9 million or 171.4% over the pro forma profit from operations for thetwelve months ended December 31, 2004 of approximately $8.7 million. Thisincrease in profit from operations was primarily the result of increased DoDsales revenue and volume on MRE contracts and co-manufacturing sales which wereoffset by higher selling, general and administrative cost as noted above.

 

*InterestExpense.* Our interest expense for the year ended December 31,2005 was approximately $14.4 million, representing an increase of $7.1 millionas compared to interest expense of approximately $7.3 million the pro formatwelve months ended December 31, 2004. The increase in interest expense in2005, primarily resulted from six additional months of interest expense on ourlong term debt for the senior secured $125 million notes and includesamortization cost of bond issuance of approximately $683,000.

 

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*InterestIncome.*Our interest income for the year ended December 31,2005 was approximately $210,000, representing a decrease of approximately$384,000 as compared to interest income of approximately $594,000 for the pro formatwelve months ended December 31, 2004. The decrease in interest income waslargely attributable to investments held by the Predecessor in the first sixmonths of fiscal year 2004, which were not purchased in the transaction.

 

*OtherIncome (expense).*Our other expense wasapproximately $201,000 for the year ended December 31, 2005 representing adecrease of approximately $574,000 as compared to other income of approximately$373,000 for the pro forma twelve months ended December 31, 2004. Theincrease in other expense as compared to other income is largely attributableto an additional $150,000 in management fees paid to Veritas Capital Managementfor twelve months of service as compared to six months in fiscal 2004 whichwere further offset by decreased or expiring Value Engineering, or “VE,”program incentives for U.S. Government contractors, where the contractor isawarded 50% of the resulting industry-wide savings for a period of three yearsfollowing the issuance by the DSCP of a contract modification requiringimplementation of the proposed change as outlined in the accepted VE proposal.

 

*IncomeTax Expense.*Theprovision for federal, state and local income taxes for the year ended December 31,2005, was approximately $2.6 million, or 28.5% of pretax income, compared to aprovision for federal, state and local income taxes of approximately $1.0million, or 41.4% of pretax income for the pro forma twelve months ended December 31,2004. The reason for the decrease in provision as a percentage of net incomeis due to the release of allowances against deferred tax assets in fiscal 2005which were initially established in fiscal 2004.

 

*NetIncome.*As a result of the foregoing, we earned netincome of $6.6 million for the year ended December 31, 2005, representingan increase of approximately $5.2 million, compared to a pro forma net incomeof approximately $1.4 million for the twelve months ended December 31,2004.

 

***Comparison of thetwelve months ended December 31, 2004, on a pro forma basis, to the year endedDecember 31, 2003***

 

*Net Sales.*Our net sales for the twelve months ended December 31,2004, on a pro forma basis, were $181.3 million representing a decrease of$137.1 million, or 43.1%, compared to net sales of $318.4 million for theyear ended December 31, 2003. The decrease in net sales resulted primarilyfrom a $134.9 million decrease in sales to the DoD. This decrease was duemostly to higher military sales volumes in 2003 associated with surgeproduction to support the war in Iraq, which were reduced in 2004. co-manufacturingsales decreased by $3.3 million during the same period due to Kraft’sdiscontinuation of one of its co-manufactured products resulting in a reductionof our net sales by $6.8 million, partially offset by increases in our otherco-manufacturing lines of $3.5 million. Net sales of our branded consumer andcommercial businesses increased in 2004, on a pro forma basis, by $2.4 million.

 

*Gross Profit.*Our gross profit in the twelve months ended December 31,2004, on a pro forma basis, was $30.2 million, representing a decrease of $22.7million, or 42.9%, compared to gross profit of $52.9 million in the yearended December 31, 2003. The decrease in gross profit was due primarily todecreased sales volumes in our military business. As a percentage of net sales,our gross profit was 16.7% for the twelve months ended December 31, 2004,on a pro forma basis, and 16.6% for the year ended December 31, 2003.

 

*Selling, General andAdministrative Expenses.*Our selling, general and administrative expenses in the twelve monthsended December 31, 2004, on a pro forma basis, were $21.5 million,representing a decrease of $5.5 million, or 20.3%, compared to selling, generaland administrative expenses of $27.0 million in the year ended December 31,2003. Selling, general and administrative expenses increased to 11.9% of netsales in the twelve months ended December 31, 2004, on a pro forma basis,from 8.5% in the year ended December 31, 2003. This increase was primarilyattributable to several non-recurring expenses in the period, includingseverance payments to the former president of our Prepared Foods Division andcosts associated with consummating the Transactions. These costs totaled $1.7million in the twelve months ended December 31, 2004, on a pro forma basis.In addition, our sales in 2004, on a pro forma basis, were

 

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43.1% lower than in 2003, resulting in an increasein our selling, general and administrative expenses, as a percentage of sales,due to a significant portion of such expenses being fixed and not varyingproportionally with our sales.

 

*Operating Profit.*Our profit from operations was approximately$8.7 million in the twelve months ended December 31, 2004, on a pro formabasis, representing a decrease of $17.2 million, or 66.4%, compared to $25.9million in the year ended December 31, 2003. This decrease in profit fromoperations resulted from our return to non-surge production volumes.

 

*Interest Expense.*Our interest expense in the twelve monthsended December 31, 2004, on a pro forma basis, was approximately $7.3million, representing an increase of approximately $6.7 million compared tointerest expense of approximately $537,000 in the year ended December 31,2003. The increase in interest expense resulted from the interest on our longterm debt incurred in the Transactions and related amortization of expensesrelated to the issuance of our long-term debt.

 

*Interest Income.*Our interest income in the twelve monthsended December 31, 2004, on a pro forma basis, was approximately $594,000,representing an increase of approximately $350,000, or 143.4%, compared tointerest income of approximately $244,000 in the year ended December 31,2003. The increase in interest income resulted from increased levels ofinvested cash by the Predecessor.

 

*Other Income, Net.*Our other income in the twelve months ended December 31,2004, on a pro forma basis, was approximately $373,000, representing a decreaseof approximately $607,000, or 61.9%, compared to other income of approximately$980,000 in the year ended December 31, 2003. This decrease in otherincome was a result of reduced rebates from the VE program, which arerecognized as earned over a period of three years. The VE program providesincentives for U.S. Government contractors to make cost savings proposals tothe DSCP. Once the DSCP accepts a contractor’s VE proposal, the contractor isawarded 50% of the resulting industry-wide savings for a period of three yearsfollowing the issuance by the DSCP of a contract modification requiringimplementation of the proposed change as outlined in the accepted VE proposal.

 

*Income Tax Expense.*The provision for federal, state and localincome taxes in the twelve months ended December 31, 2004, on a pro formabasis, was approximately $1.0 million, or 41.4% of pretax income, compared to aprovision for state and local income taxes of approximately $439,000, or 1.7%of pretax income, in the year ended December 31, 2003. The increase inincome tax expense in 2004, on a pro forma basis, as compared to 2003 isrelated to our recording deferred tax liabilities of approximately $1.2 millionand deferred tax assets of approximately $270,000 as of December 31, 2004.

 

*Net Income.*As a result of the foregoing, we earned netincome of $1.4 million in the twelve months ended December 31, 2004, on apro forma basis, representing a decrease of $24.7 million, or 94.6%, comparedto net income of $26.2 million in the year ended December 31, 2003.

 

**Operating Segment Results**

 

We have two reportable segments. The RAD division isour core military supply business and the PFD division includes military supplyas well as our core commercial business. In addition, the PFD division suppliesthe RAD division with intermediate items (approximately 31% at December 31,2005) used to assemble products distributed by the RAD division as well asdirectly supplying military customers with certain items. The discussion belowof the operating results of these two segments should be read in conjunctionwith Note 14 to our Consolidated Financial Statements.

 

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***Comparison of theyear ended December 31, 2005 to the pro forma twelve months ended December 31,2004***

 

*NetSales.*Net sales for the RAD segment increased byapproximately $59.0 million for the year ended December 31, 2005, comparedto the pro forma twelve months ended December 31, 2004, as a result ofincreased MRE and UGR-A sales ($44.3 million and $13.2 million, respectively)increases to support surge and overseas operations. The remaining difference isprimarily the result of other military sales which includes approximately $1.6million in sales to support of humanitarian efforts following Hurricane Katrinaand the Pakistani earthquake. Net sales for the PFD segment increased byapproximately $17.6 for the year ended December 31, 2005, compared to thepro forma twelve months ended December 31, 2004 (excluding intersegmentsales, which declined by approximately $1.0 million during the same period) dueprimarily to increased co-manufacturing sales increases of approximately $18.1million which were slightly offset by overall decreases in military tray pack,specialty and other sales.

 

*OperatingProfit.*Profit from operations for RAD increased byapproximately $27.3 million for the year ended December 31, 2005 ascompared to the pro forma twelve months ended December 31, 2004 as aresult of the increased sales and volumes noted above. Also included in theoperating profit of our RAD segment is an estimated $11.1 million that wouldhave been previously recognized by our PFD segment on MRE shipments to the RADsegment (intersegment sales which are now recorded at cost). Profit fromoperations for the PFD segment decreased by $9.2 million for the year ended December 31,2005, compared to profit from operations for the pro forma twelve months ended December 31,2004 for the PFD segment due to approximately $11.1 million in gross profitfrom intercompany sales now being included in the RAD segment as discussedabove. The remaining difference is represented by the increased gross profit onco-manufacturing and Canadian sales of approximately $4.2 million and is offsetby decreased operating profit on specialty and other sales and increasedselling, general and administrative expenses.

 

***Comparison of thetwelve months ended December 31, 2004, on a pro-forma basis, to the yearended December 31, 2003***

 

*Net Sales.*Net sales for the RAD segment declined by$123.6 million for the twelve months ended December 31, 2004, on a proforma basis, compared to the year ended December 31, 2003 due to decreasedsales to the DoD. Net sales for the PFD segment declined by $13.5 million forthe twelve months ended December 31, 2004, on a pro forma basis, comparedto the year ended December 31, 2003(excluding inter-segment sales, whichdeclined by $18.1 million during the same period) due to reductions in ourTray-Pack sales to the DoD of $12.8 million and reduced sales of our commercialproducts in 2004. co-manufacturing sales decreased by $3.3 million during thesame period due to Kraft’s discontinuation of one of its co-manufacturedproducts resulting in a reduction of our net sales by $6.8 million, partiallyoffset by increases in our other co-manufacturing lines of $3.5 million. Netsales of our branded consumer and commercial businesses increased in 2004 by$2.4 million.

 

*Operating Profit.*Profit from operations for RAD decreased by$17.4 million for the twelve months ended December 31, 2004, on a proforma basis, compared to the year ended December 31, 2003 for the RADsegment due to a decrease in sales to the DoD and a return to non-surgeproduction in 2004. Profit from operations for PFD decreased by $4.5 millionfor the twelve months ended December 31, 2004, on a pro forma basis,compared to the year ended December 31, 2003 for the PFD segment due to adecrease in sales to the DoD and inter-segment sales and the discontinuation ofa product line by Kraft in 2004.

 

**Liquidity and Capital Resources**

 

The following table summarizes our net cash providedby or used in our operating activities, investing activities and financingactivities and our capital expenditures for the fiscal year ended December 31,2003, the six months ended June 30, 2004 and December 31, 2004 andthe fiscal year ended December 31, 2005.

 

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| ** **                           | ** ** | **Predecessor**       | ** ** | **Successor**               | ** ** | ** **            | ** ** | **Successor**         | ** ** |
|--------------------------------------|------------|-----------------------|------------|-----------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                           | ** ** | ** **            | ** ** | ** **                  | ** ** | ** **            | ** ** | **Pro forma**    | ** ** | ** ** | ** ** |
| ** **                           | ** ** | ** **            | ** ** | **Six-Month**               | ** ** | **Year End**     | ** ** | ** **            | ** ** |
| ** **                           | ** ** | ** **            | ** ** | **Six-Month**               | ** ** | **Period Ended** | ** ** | **December 31,** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **December 31,** | ** ** | **Period Ended**       | ** ** | **December 31,** | ** ** | **2004**              | ** ** | **December 31,** | ** ** |
| **(dollars in thousands)** | ** ** | **2003**              | ** ** | **June 30, 2004** | ** ** | **2004**              | ** ** | **(Unaudited)**       | ** ** | **2005** | ** ** |
| Net cash  provided by (used in):     |       |                  |       |                        |       |                  |       |                  |       |   |   |
| Operating  activities                |       | $                     | 34,552     |                        | $          | (472                  | )          | $                     | 10,125     |   | 9,653 |   | $ | 27,654 |   |
| Investing  activities                |       | (17,708               | )          | (11,792                     | )          | (169,336              | )          | (181,128              | )          | (13,612 | ) |
| Financing  activities                |       | (12,595               | )          | 8,314                       |       | 162,500               |       | 170,814               |       | — |   |
| Capital  expenditures                |       | (12,526               | )          | (2,383                      | )          | (4,301                | )          | (6,684                | )          | (13,612 | ) |
|                                      |            |                       |            |                             |            |                       |            |                       |            |  |  |  |  |  |  |

 

 

*Operating Activities.*

 

Net cash provided by (used in) operating activitieswas approximately $27.7 million for the year ended December 31, 2005 andapproximately $(472,000) and $10.1 million for the six months ended June 30,2004 for the Predecessor and December 31, 2004 for the Successor,respectively. Cash generated from operating activities increased for the yearended December 31, 2005 as compared to the twelve months pro forma yearended December 31, 2004 due mostly to higher military sales to the DoD andincreased sales of our co-manufacturing products which were offset by overallincreased selling, general and administrative expenses over the same timeperiod. In addition, the Predecessor used additional cash to make paymentsrelated to stock options and stock-based compensation plans.

 

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

 

*Investing Activities*

 

Net cash used in investing activities wasapproximately $13.6 million for the year ended December 31, 2005 andapproximately $11.8 million and $169.3 million for the six months ended June 30,2004 for the Predecessor and December 31, 2004 for the Successor,respectively. The $13.6 million investment for the year ended December 31,2005 related to capital equipment whereas the investments of the Successor andthe Predecessor for the pro forma twelve months ended December 31, 2004was primarily due to the *investments*of excess cash in longer-term investments of approximately $10.0 million and$2.4 million in capital equipment. The $169.3 million investment by theSuccessor in the six months ended December 31, 2004 was related to thecapital investment of $4.3 million and the cash used to effect the Transactionsof $165.0 million.

 

Net cash used in investing activities was $11.8million and $169.3 million for the six months ended June 30, 2004 for thePredecessor and December 31, 2004 for the Successor, respectively. Cashused in investing activities was $17.7 million for the year ended December 31,2003. The $11.8 million investment by the Predecessor in the six months ended June 30,2004 was primarily due to the *investments*of excess cash in longer-term investments of approximately $10.0 million and$2.4 million in capital equipment. The $169.3 million investment by theSuccessor in the six months ended December 31, 2004 was related to the capitalinvestment of $4.3 million and the cash used to effect the Transactions of$165.0 million.

 

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*Financing Activities*

 

For the year ended December 31,2005 there were no amounts outstanding on our line of credit and we have fundedall capital expenditures with cash from operations.

 

We had no cash flows from financing activities forthe year ended December 31, 2005.

 

Net cash provided by (used in) financing activitieswas $8.3 million and $162.5 million for the six months ended June 30,2004 for the Predecessor and December 31, 2004 for the Successor,respectively. For the year ended December 31, 2003, net cash used in financingactivities was $12.6 million due to payments on the ESOP note and reduced borrowingson the Predecessor’s line of credit.

 

*Capital Expenditures*

 

Capital expenditures were $13.6 million for the yearended December 31, 2005 as compared to capital expenditures of $2.4million for the six months ended June 30, 2004 and $4.3 for the six monthsended December 31, 2004, for a total of $6.7 million for the twelve monthsended December 31, 2004, on a pro forma basis. Expenditures during fiscalyear 2005 were primarily to increase co-manufacturing capacity and thebuild-out of our new corporate facility whereas capital expenditures for thepro forma twelve months ended December 31, 2004 were in support ofadditional capacity and improvement of both military and co-manufacturing linesas well as infrastructure.

 

Our capital investment of $12.6 million in 2003 wassignificantly higher than the $6.7 million pro forma 2004 due to our investmentin new equipment to maintain and increase production levels to support the DoD’smilitary mobilization capacity.

 

*Long-Term Debt Expenditures*

 

The following table summarizes the long-term debt asof December 31, 2004 and 2005:

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

 

We incurred interest expense of approximately$537,000 for the year ended December 31, 2003, $7.3 for the pro formatwelve months ended December 31, 2004 and $14.4 million for the year endedDecember 31, 2005 which also includes approximately $683,000 of bond costamortization. In connection with the Transactions, $13.0 million ofthen-existing long-term debt of the Predecessor was repaid, and we issued theoriginal notes and entered into our new working capital facility. As a result,we have incurred and will continue to incur significant debt service payments,including interest, in future years. Total cash interest payments related tothe notes will be approximately $13.6 million on an annual basis. To theextent we have borrowings outstanding under our new working capital facility,we will have additional cash interest payments.

 

On February 11, 2005, our Parent Company, andits wholly-owned finance subsidiary, TWC Holding Corp., co-issued their 13.875%Senior PIK Notes due 2011, or the “Senior PIK Notes,” in the approximateaggregate principal amount of $62,259,000 with a discount of approximately$36,259,000. The Senior PIK Notes earn interest at the rate of 13.875% perannum, mature on August 15, 2011 and are unsecured obligations of ourParent Company and TWC Holding Corp. Neither the Company nor any of its

 

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subsidiaries guaranteed the Senior PIK notes. Thenotes limit the Company’s 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 ourParent Company is a holding company with no operations and has only itsinvestment in the Company, and because TWC Holding Corp. has no independentoperations or assets, future cash flows or assets of the Company through 2011 may berequired to service the $62.3 million Senior PIK notes upon their maturity.

 

The pro forma effect of the additional interestexpense on our net income assuming the Company issued the Senior PIK notes andsuch issuance took place at the beginning of the year would have resulted ininterest expense (pre-tax) of approximately $3,733,000 for the year ended December 31,2005.

 

The indenture governing the notes and our newworking capital facility impose significant operating and financialrestrictions on us. These restrictions limit or prohibit, among other things,our ability to incur additional indebtedness, repay indebtedness prior tostated maturities, pay dividends on or redeem or repurchase our stock, issuecapital stock, make investments, create liens, sell certain assets or mergewith or into other companies, enter into certain transactions with stockholdersand affiliates, make capital expenditures, sell stock in our subsidiaries andrestrict dividends, distributions or other payments from our subsidiaries. Inaddition to imposing restrictions substantially similar to those contained inthe indenture governing the notes, our new working capital facility requires usto meet certain financial ratios and financial condition tests on a periodicbasis.

 

We expect our capital expenditures in 2006 to beapproximately $18.6 million, primarily to support our furtherconsolidation of operations by discontinuing our Assembly operations inMcAllen, Texas and shifting the work performed at that location to the GreaterCincinnati Tri-state area and continued plant efficiency improvements.

 

Our principal sources of liquidity are cash flowgenerated from operations and borrowings under our working capital facility.Because we did not purchase certain working capital in the Transactions, wewere required to draw down $3.0 million under our working capital facility toprovide funds for operations and to fund expenses incurred in connection withthe Transactions. As of December 31, 2004, we had repaid the original $3.0million and there were no borrowings outstanding on our working capitalfacility. Further, we have no amounts outstanding under our working capitalfacility at December 31, 2005

 

Our liquidity is dependent on a number of otherfactors, including the timing of collection on our contract receivables,processing of weekly payroll and associated taxes, payment to our suppliers andemployer portions of employee benefits. Our principal uses of cash will be tomeet debt service requirements, finance our capital expenditures and fundworking capital. Based on our current level of operations and our anticipatedgrowth, we believe that the cash proceeds from the issuance of the originalnotes, our cash from operations and other available sources of liquidity willbe sufficient to fund our operations for the next 12 months and for ourcurrently anticipated needs beyond that period. Our future operatingperformance and ability to extend or refinance our indebtedness will bedependent on future economic conditions and financial, business and otherfactors that are beyond our control. See Part I, Item 1A, “Risk Factors.”

 

***ContractualObligations***

 

The following sets forth our long-term debt,interest on long-term debt and operating lease obligations as of December 31,2005:

 

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**Contractual Cash Obligations**

 
| ** **                           | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | **Less than**                        | ** ** | **1 - 3** | ** ** | **3 - 5** | ** ** | **More than 5** | ** ** |
| **(dollars in thousands)** | ** ** | **Total**  | ** ** | **1 year**                           | ** ** | **years** | ** ** | **years** | ** ** | **years** | ** ** |
| Long-term  debt                      |       | $          | 125,000    |                                      | $          | — |   | $ | — |   | $ | — |   | $ | 125,000 |   |
| Interest on  long-term debt          |       | 74,767     |       | 13,594                                    |       | 27,188 |   | 27,188 |   | 6,797 |   |
| Leases                               |       | 12,162     |       | 2,901                                     |       | 5,703 |   | 3,512 |   | 46 |   |
| Total                                |       | $          | 211,929    |                                      | $          | 16,495 |   | $ | 32,891 |   | $ | 30,700 |   | $ | 131,843 |   |

 

We had no capital lease or purchase obligations asof December 31, 2005. As a result of the acquisition transaction, we arerequired to pay a management fee of approximately $300,000 per year to VeritasCapital Management.

 

**Backlog**

 

Backlog represents products or services that ourcustomers have committed by contract to purchase from us and for which we havefirm orders. A large portion of these commitments is terminable by the customerat will. A significant portion of our sales to the DoD is pursuant to long-termcontracts. Accordingly, our backlog consists in large part of orders underthese contracts.

 

Our total backlog as of December 31, 2005 was $67.2 million.The following depicts our backlog as of December 31 of the year shown.

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

 

It is expected that a substantial portion of ourbacklog will be converted to revenue. However, there can be no assurance thatour backlog will become revenues in any particular period, if at all. See Part I,Item 1A, “Risk Factors.” As of December 31, 2005, 70.5% and 29.5% of ourbacklog was derived from our contracts with the DSCP and our commercialcontracts, respectively.

 

**Off-Balance Sheet Arrangements**

 

As of December 31, 2005, we had no off-balancesheet arrangements.

 

**Internal Controls Documenting andTesting**

 

We will be subject to the requirements of Section 404of the Sarbanes-Oxley Act of 2002, or “Section 404,” for the fiscal yearending December 31, 2007. We plan to begin documenting and testing ourinternal controls in the second quarter of 2006 in order to satisfy theserequirements for fiscal year 2007. During the course of such documenting andtesting, we may identify significant deficiencies or material weaknessesin our internal controls over financial reporting. Our management will likelybe required to devote significant time and expense to remediate such materialweaknesses, but may not be able to remediate such material weaknesses in atimely manner. If we fail to maintain the adequacy of our internal controls,our management may not be able to conclude on an ongoing basis that we haveeffective internal controls over financial reporting in accordance with Section 404.As a result, our independent auditors may be unable to express an opinionon our management’s evaluation on the effectiveness of internal controls asrequired by Section 404 regarding our management’s report on internalcontrols. Failure to achieve and maintain an effective internal controlenvironment could have a material adverse effect on our business and on ouraccess to the capital markets.

 

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## **Item 7A:**   Quantitative and Qualitative DisclosuresAbout Market Risk

 

We are exposed to market risk, primarily from theimpact of interest rate changes on our use of variable rate debt. Our exposureto market risks from foreign currency and commodity price fluctuations islimited since all of our purchases and sales are denominated in U.S. dollarsand raw commodities do not comprise a significant percentage of our costs. Oursales to the Canadian military comprised less than 1% of our sales in 2005, andwe may from time to time enter into foreign currency forward contracts andother hedges to manage our exposure to fluctuations in foreign currencyexchange rates for the Canadian dollar, the impact of which is not significant.Other than with respect to our sales to the Canadian military, we generally donot have exposure to foreign currency risk. In addition, because our customarycontract terms pass through increase in costs of commodities underlying ourproducts to our customers, we generally do not have exposure to commodity pricerisk. We do not hold any derivatives for trading or speculative purposes. Changesin the fair value of derivatives are recorded in current earnings along withthe change in the fair value of the underlying hedged item.

 

All of our outstanding bank debt bears interest atvariable interest rates tied to the prime interest rate. The use of variablerate debt to finance our operations and capital improvements exposes us tovariability in interest payments due to changes in interest rates.

 

As of December 31, 2005, no amounts wereoutstanding under our working capital facility. If the average outstandingamount under our working capital facility were $25 million over a one-yearperiod, a 50 basis point increase in the prime interest rate would result inincreased annual interest expense of $125,000.

 

## **Item 8:**   Financial Statements and SupplementaryData

 

The consolidated financial statements required bythis item are included in a separate section beginning on page F-1.

 

## **Item 9:**   Changes In and Disagreements withAccountants on Accounting and Financial Disclosure

 

None.

 

## **Item9A:   Controls and Procedures**

## ** **

Management, including our principal executiveofficer and principal financial officer, has evaluated, as of the end of theperiod covered by this report, the effectiveness of the design and operation ofour disclosure controls and procedures with respect to the informationgenerated for use in this report. Based upon, and as of the date of thatevaluation, our principal executive officer and principal financial officerconcluded that the disclosure controls and procedures were effective to providereasonable assurances that information required to be disclosed in the reportsfiled or submitted under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

In designing and evaluating the disclosure controlsand procedures, our management recognized that any controls and procedures, nomatter how well designed and operated, can provide only reasonable, notabsolute, assurance of achieving the desired control objectives and managementnecessarily was required to apply its judgment in evaluating the cost-benefit relationshipof possible controls and procedures. Based upon the above evaluation, ourmanagement believes that its controls do provide such reasonable assurances.

 

There have been no changes in our internal controlover financial reporting that occurred during our most recent fiscal quarterthat have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

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## **Item9B:   Other Information**

 

Pursuant to the Company's obligation underRegulation FD, the Company is hereby furnishing the following information underItem 9B of this current report on Form 10-K.

 

On March 30, 2006 we were notified by DefenseSupply Center Philadelphia, that The Wornick Company was awarded a 25% sharelevel of the MRE-26-to-30 DoD contract which runs from fiscal 2006 through2010. We do not anticipate that this award level will impact our strategy whichwe believe will continue to deliver increasing stakeholder value.

 

**PART III.**

 

## **Item 10:**   Directors and Executive Officers of theRegistrant

 

The following table sets forth the directors andexecutive officers of The Wornick Company and their ages as of March 31,2006. All directors and officers serve for a period of one year or until theirsuccessors are duly elected and qualified.

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

 

**Robert B. McKeon, *Chairman and Director.***Mr. McKeon has been the Chairman of ourboard of directors and a member of our compensation committee, corporategovernance and nominating committee and executive committee since June 2004.Mr. McKeon is the President of Veritas Capital, a New York-based private equityinvestment firm he founded in 1992. Mr. McKeon is on the Board of Trusteesof Fordham University and the Board of Fellows of Trinity College. Mr. McKeonis also a member of the Council on Foreign Relations and a member of the boardsof directors of several private companies. Mr. McKeon holds a bachelor’sdegree from Fordham University and a master’s degree in business administrationfrom Harvard Business School.

 

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

 

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

 

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Manager. He most recently served as Executive VicePresident and Chief Operating Officer of the Prepared Foods Division. Mr. Geisler’scurrent responsibilities include oversight of operations, quality assurance,technical services and engineering. He holds a bachelor of science degree inEngineering Management from the University of Evansville.

 

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

 

**Thomas J. Campbell, *Secretary and Director.***Mr. Campbell has been our Secretary anda member of our board of directors and a member of our compensation committee,corporate governance and nominating committee and executive committee since June 2004.Mr. Campbell is a partner at Veritas Capital, which he has been associatedwith since 1992. He is also a member of the boards of directors of severalprivate companies. Mr. Campbell holds a bachelor’s degree in accountingand finance from Lehigh University.

 

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

 

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

 

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

 

42

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**Ramzi M. Musallam, *Director.***Mr. Musallam has been a member of ourboard of directors and a member of our compensation committee, corporategovernance and nominating committee and executive committee since June 2004.Mr. Musallam is a partner of Veritas Capital, with which he has beenassociated with since 1997. He is also a member of the boards of directors ofseveral private companies. Mr. Musallam holds a bachelor’s degree fromColgate University with a double major in economics and mathematics and amaster’s degree in business administration from the University of ChicagoGraduate School of Business.

 

**Audit Committee Financial Expert**

 

As presently constituted, the audit committee of ourboard of directors does not have a member that is a “financial expert,” as suchterm is defined in Item 401(h) of Regulation S-K promulgated by the SEC. Severalmembers of our audit committee currently serve or have served as members ofaudit committees of the boards of directors of other reporting companies. Ourboard of directors has determined that while none of the audit committeemembers meets all of the criteria established by the SEC to be classified as a “financialexpert,” the members of our audit committee have sufficient understanding ofaudit committee functions, internal control over financial reporting andfinancial statement evaluation so as to capably perform the tasks requiredof the audit committee. Accordingly, our board of directors believes that theadditional expense and effort necessary to add an individual to our board ofdirectors and its audit committee solely for the purpose of satisfying thecriteria of a “financial expert” is unwarranted given the size of ouroperations and complexity of our financial statements.

 

**Code of Ethics**

 

We have adopted a code of ethics that applies to ourprincipal executive officer, principal financial officer or controller, and toother persons performing similar functions.

 

## **Item 11:   ExecutiveCompensation**

 

The following table summarizes compensation awardedor paid by us during 2005 and 2004****toour President and Chief Executive Officer and our other executive officers. Thefiscal 2004 compensation amounts in the following table for Messrs. Geisler,Cavazos, and McQuay reflect compensation paid by the Predecessor Company on orprior to June 30, 2004. Only two years of compensation information hasbeen provided in the table as we were not a reporting company at any timeduring fiscal year 2003.

 

43

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

 

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(1)                                  During fiscal year 2004, TWC Holding LLC, ourparent, granted awards of Class B interests, as described below in moredetail in “—Option Plan” below and Part III, Item 12, “Security Ownershipof Certain Beneficial Owners and Management and Related Stockholder Matters.” These awards were valued at the time of their grants as follows: Larry L. Rose,a 2.5% interest valued at approximately $488 thousand (forfeited uponresignation); Jon P. Geisler, a 1.5% interest valued at approximately $293thousand; Humberto “Sonny” Cavazos, a 0.5% interest valued at approximately $98thousand (relinquished in 2005); and Keith E. Frase, a 1.5% interest valued atapproximately $293 thousand (forfeited upon resignation). These awardedinterests are subject to a five-year vesting schedule and were deemed tohave vested 10% for the six months ended December 31, 2004 for thepurposes of the above table. Two additional Class B interests awards weregranted by TWC Holding LLC during the year ended December 31, 2005 andhave similar terms as the initial award described above.

 

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

 

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

 

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

 

**Option Plan**

 

We have no stock option plan. Members of our managementand outside directors participate in our profits through a plan that grantsthem Class B interests in TWC Holding LLC, our parent. Pursuant to theterms of the operating agreement governing TWC Holding LLC, the holders of Class Binterests may receive up to approximately 7.9%, in the aggregate, of alldistributions made by TWC Holding LLC after the holders of the Class Ainterests in TWC Holding LLC have received a return of their invested capital,provided that the holders of the Class A interests have received an 8% perannum internal rate of return on their invested capital. The currentlyoutstanding Class B interests entitle the holders thereof to receiveapproximately

 

44

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3.9%, in the aggregate, of all such distributionsmade by TWC Holding LLC. The Class B interests are subject to a five-yearvesting schedule with any unvested interests reverting to the holders of Class Ainterests in the event they are forfeited or repurchased.

 

**Incentive Compensation Plan**

 

Members of our management were eligible toparticipate in our executive incentive compensation plan beginning in 2005,which provided bonuses for certain key executives if we achieved certainperformance targets set by our Board of Directors. Under the incentive plan,participants generally are eligible to receive an award based on a percentageof base salary. During fiscal 2006 we paid approximately $1.1 million tomembers of management under the executive incentive compensation plan that wasexpensed in fiscal 2005. A similar executive incentive compensation plan hasbeen approved for fiscal year 2006.

 

**401(k) Plan**

 

We sponsor a defined contribution plan, or 401(k)Plan, intended to qualify under Section 401 of the Internal Revenue Codeof 1986, as amended, or the Code. Substantially all of our employees areeligible to participate in our 401(k) Plan on the first day of the monthfollowing an employee’s completion of 90 days of employment. Employees may makepre-tax contributions from 1% to 50% of their eligible compensation, but not toexceed the limits prescribed under the Code. Employees may direct theirinvestments among various pre-selected investment alternatives. Employeecontributions to our 401(k) Plan vest immediately. We match 100% of theemployee’s pre-tax contributions for the first 3% of the employee’scompensation deferred, plus 50% of the employee’s pre-tax contributions for thenext 2% of compensation deferred, for a maximum employer matching contributionof 4% of compensation deferred. The employer matching contributions foremployees participating in our 401(k) Plan also vest immediately.

 

**Employment Arrangements**

 

On April 11, 2005, The Wornick Company enteredinto an employment agreement with Michael M. Thompson to serve as the Company’sPresident and Chief Executive Officer. The initial term of the employmentagreement extended through December 31, 2005. The employment agreementautomatically renews for additional one year terms unless one of the partiesprovides written notice of intent not to renew the employment agreement atleast 90 days prior to the expiration of the then current term. As of March 31,2006, no such communication was made by either party to the agreement.

 

Our other executives are not presently bound byemployment agreements with us and may resign or be terminated at any time.We may in the future enter into employment or severance arrangements withour executives.

 

**Compensation Committee Interlocksand Insider Participation**

 

Our compensation committee consists of Messrs. Campbell,McKeon and Musallam. The compensation committee makes decisions on thecompensation of certain of our executive officers. There are no compensationcommittee interlocks (i.e., none of our executive officers serves as a memberof the board of directors or the compensation committee of another entity thathas an executive officer serving on our board of directors). None of ourdirectors or officers has any relationships that would require disclosurepursuant to Item 404 of Regulation of S-K (“Certain Relationships and RelatedTransactions”), except as described below in “—Director Compensation” and asdisclosed in Item 13.

 

**Director Compensation**

 

The three outside directors, General McCaffrey andAdmirals Prueher and Smith, are each paid an annual fee of $35,000, anadditional fee of $2,000 for each regular quarterly meeting of the board ofdirectors that they attend and an additional fee of $6,250 for each othermeeting of the board of directors that they attend. Each of the outside directorsis also reimbursed for his travel, lodging and other expenses of

 

45

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attending meetings of the board of directors. Inaddition, each member of the audit committee of our board of directors receivesa fee of $2,500 for each audit committee meeting that he attends. There are noother fees paid to these directors. We do not maintain a medical, dental, orretirement benefits plan for these directors. The remaining directors areemployed either by us or Veritas Capital and are not separately compensated fortheir services as directors although they are reimbursed for expenses incurredin connection with attending board and committee meetings.

 

## **Item 12:**   Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.

 

We are a wholly owned subsidiary of TWC Holding LLC,a Delaware limited liability company.

 

The following table sets forth the beneficialownership of TWC Holding LLC as of March 27, 2006 by (i) each personor entity known to us to own more than 5% of any class of TWC Holding LLC’soutstanding securities, (ii) each member of our board of directors andeach of our named executive officers and (iii) all of the members of theboard of directors and executive officers as a group.

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

 

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*                             Less than 1%.

 

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

 

(2)                      Beneficial ownership is determined in accordance with the rules ofthe SEC.

 

46

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(3)                      TWC Holding LLC has two classes of membership interests, Class Ainterests and Class B interests. Certain members of our management andoutside directors have received Class B interests. Pursuant to the termsof the operating agreement governing TWC Holding LLC, the holders of Class Binterests are entitled to receive up to approximately 7.9%, in the aggregate,of all distributions made by TWC Holding LLC after the holders of Class Ainterests in TWC Holding LLC have received a return of their invested capital,provided that the holders of the Class A interests have received an 8% perannum internal rate of return on their invested capital. The Class Binterests are subject to a five-year vesting schedule with any unvestedinterests reverting to the holders of Class A interests.

 

(4)                      Represents the percentage of distributions by TWC Holding LLC to whichthe holder of interests would be entitled in respect of such holder’s Class Ainterests or Class B interests, as applicable, assuming (i) fullvesting of the Class B interests and (ii) that holders of all Class Ainterests of TWC Holding LLC have received the stated returns on their investedcapital.

 

(5)                      Veritas Capital Management II, L.L.C.’sinterest in us is held indirectly through TWC Holding LLC. The Veritas CapitalFund II, L.P., a Delaware limited partnership of which Veritas CapitalManagement II, L.L.C. is the general partner, is the manager of TWC Holding LLC.The Veritas Capital Fund II, L.P. owns 94.7% of the Class A membershipinterests of TWC Holding LLC. Through the provisions of the limited liabilitycompany agreement governing TWC Holding LLC, The Veritas Capital Fund II, L.P.controls the vote of all our shares held by TWC Holding LLC and is deemed toown all our common stock held by TWC Holding LLC. Interests in TWC Holding LLCare not transferable without the consent of The Veritas Capital Fund II, L.P.

 

(6)                      Messrs. McKeon, Campbell and Musallamare principals of Veritas Capital Management. Accordingly, they may bedeemed to share beneficial ownership of the membership interests owned byVeritas Capital Management although they disclaim this beneficial ownershipexcept to the extent of their pecuniary interest in Veritas Capital Management.

 

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

 

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

 

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

 

**Securities Authorized for IssuanceUnder Equity Compensation Plans**

 

For more information, see Part III, Item 11, “ExecutiveCompensation –  Option Plan,” for adiscussion of the features of the plan we utilize to incentivize our managementand outside directors.

 

47

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

 

**Transaction Fee**

 

In connection with the acquisition transaction, wepaid a transaction fee of $3.0 million to Veritas Capital Management, anaffiliate of The Veritas Capital Fund II, L.P., out of the proceeds of theoffering of the notes. This fee has been reflected as part of the fees andexpenses of the acquisition.

 

**Management Fee**

 

We pay an annual management fee of $300,000 toVeritas Capital Management, an affiliate of The Veritas Capital Fund II, L.P.

 

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

 

PricewaterhouseCoopers LLP has served as ourindependent registered public accounting firm since the consummation of theacquisition transaction on June 30, 2004. The following table sets forththe aggregate fees billed by PricewaterhouseCoopers for professional servicesfor the year ended December 31, 2005 and for the six-months ended December 31,2004 for professional services provided, as well as out-of-pocket costsincurred in connection with these services:

 
| ** **          | ** ** | ** **            | ** ** | **Six-months**        | ** ** |
|---------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **          | ** ** | **Year ended**   | ** ** | **ended**             | ** ** |
| ** **          | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **          | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| Audit fees          |       | $                     | 190,000    |                  | $          | 150,000 |   |
| Audit-related  fees |       | 6,844                 |       | 146,000               |       |
| Tax fees            |       | 37,000                |       | —                |       |
| All other  fees     |       | 2,566                 |       | 2,568                 |       |
| Total               |       | $                     | 236,410    |                  | $          | 298,568 |   |

 

*Audit Fees*. Consists of fees for professional servicesrendered for the audit of our financial statements and review of the interimfinancial statements included in quarterly reports.

 

*Audit-Related Fees*. Consists of fees for assurance and relatedservices that are reasonably related to the performance of the audit or reviewof our financial statements that are not reported under “Audit Fees”, andservices that are normally provided by PricewaterhouseCoopers in connectionwith statutory and regulatory filings or engagements. These services includeconsultations in connection with our acquisition of our business and advice onother accounting-related matters. In fiscal year 2004, these fees wereprimarily comprised of services for consulting related to accounting mattersand due diligence and comfort letter services related to the acquisitiontransaction and related debt offerings.

 

*Tax Fees*. Consists of fees for preparation offederal, state and local income and franchise tax returns. There were no feesincurred in the six months ended December 31, 2004 for professionalservices rendered related to tax compliance, tax advice or tax planning.

 

*All Other Fees*. Consists of fees for all other fees forprofessional services, comprised primarily of purchase of accounting andcompliance software.

 

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**Audit Committee Pre-Approval**

 

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

 

Our audit committee has determined that thenon-audit services provided by PricewaterhouseCoopers LLP are compatible withmaintaining the independence of PricewaterhouseCoopers LLP as the independentauditors.

 

For the year ended December 31, 2005 all of theaudit, audit related fees, tax fees and other fees provided byPricewaterhouseCoopers LLP have been approved by the audit committee.

 

**PART IV.**

 

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

 

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

 

A list of financial statements required to be filedas part of this report is set forth in the Index to Consolidated FinancialStatement, which immediately precedes such financial statements, and isincorporated herein by reference.

 

**(a)(2)  Financial StatementSchedules**

 

Financial statement schedules are omitted becausethey are not required or are not applicable or the information required to beset forth therein is included elsewhere in the financial statements or thenotes thereto.

 

**(a)(3)  Exhibits**

 

A list of exhibits required to be filed as part ofthis report is set forth in the Exhibit Index, which immediately precedessuch exhibits, and is incorporated herein by reference.

 

49

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**Signatures**

 

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

 

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

 

 

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

 

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

 

50

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Supplemental Information to be Furnished withReports Filed Pursuant to Section 15(d) of the Securities ExchangeAct of 1934 by Registrants which have not Registered Securities Pursuant to Section 12of the Securities Exchange Act of 1934:

 

No annual report or proxy materials have been sentto any registrant’s security holders.

 

**Exhibit Index**

 
| **No.**  | ** ** | **Description**                                                                                                                                                                                                                                                                           |
|----------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.1 (1)  |       | Certificate of Incorporation of the Registrant,  filed with the Delaware Secretary of State on November 24, 2003                                                                                                                                                                     |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.2 (1)  |       | Bylaws of the Registrant                                                                                                                                                                                                                                                                  |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.3 (1)  |       | Certificate of Incorporation of Right Away  Management Corporation, filed with the Delaware Secretary of State on December 18,  2003                                                                                                                                                 |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.4 (1)  |       | Bylaws of Right Away Management Corporation                                                                                                                                                                                                                                               |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.5 (1)  |       | Certificate of Incorporation of The Wornick  Company Right Away Division, filed with the Delaware Secretary of State on December 18,  2003                                                                                                                                           |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.6 (1)  |       | Bylaws of The Wornick Company Right Away Division                                                                                                                                                                                                                                         |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.7 (1)  |       | Certificate of Limited Partnership of The Wornick  Company Right Away Division, L.P., filed with the Delaware Secretary of State  on December 22, 2003                                                                                                                               |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.8 (1)  |       | Agreement of Limited Partnership of The Wornick  Company Right Away Division, L.P., entered into as of December 22, 2003                                                                                                                                                             |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.9 (1)  |       | Limited Liability Company Operating Agreement of  TWC Holding LLC, dated as of June 30, 2004                                                                                                                                                                                         |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.10 (1) |       | Amendment No. 1 to the Limited Liability  Company Operating Agreement of TWC Holding LLC, effective as of August 18,  2004                                                                                                                                                      |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.11(4)  |       | Amendment No. 2 to the Limited Liability  Company Operating Agreement of TWC Holding LLC, effective April 11, 2005                                                                                                                                                              |
|     |       |                                                                                                                                                                                                                                                                                      |
| 3.11(5)  |       | Amendment No. 3 to the Limited Liability  Company Operating Agreement of TWC Holding LLC, effective November 11,  2005                                                                                                                                                          |
|     |       |                                                                                                                                                                                                                                                                                      |
| 4.1 (1)  |       | Indenture, dated as of June 30, 2004, by and  among, the Registrant, The Wornick Company Right Away Division, The Wornick  Company Right Away Division, L.P., Right Away Management Corporation and U.S.  Bank National Association                                                  |
|     |       |                                                                                                                                                                                                                                                                                      |
| 4.2 (1)  |       | Registration Rights Agreements, dated as of June 30,  2004, by and among the Registrant, The Wornick Company Right Away Division,  The Wornick Company Right Away Division, L.P., Right Away Management  Corporation, Jefferies & Company, Inc. and CIBC World Markets |

 

51

----

 
| **No.**    | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3 (1)    |       | Form of 107/8% Senior  Secured Notes due 2011                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4 (1)    |       | Form of Guarantee                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.1 (1)   |       | Intercreditor Agreement, dated as of June 30,  2004, among the U.S. Bank National Association and Texas State Bank                                                                                                                                                                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.2 (1)   |       | Security Agreement, dated as of June 30,  2004, by and among the Registrant, The Wornick Company Right Away Division,  The Wornick Company Right Away Division, L.P., Right Away Management  Corporation and U.S. Bank National Association, as collateral agent                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3 (1)   |       | Loan Agreement, dated as of June 30, 2004, by  and among the Registrant, The Wornick Company Right Away Division, The  Wornick Company Right Away Division, L.P., Right Away Management Corporation  and Texas State Bank                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.4 (1)   |       | Revolving Line of Credit Promissory Note, dated June 30,  2004, by the Registrant in favor of Texas State Bank                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.5 (1)   |       | Guaranty (Continuing Debt-Unlimited), dated June 30,  2004, by The Wornick Company Right Away Division, The Wornick Company Right  Away Division, L.P., Right Away Management Corporation                                                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.6 (1)   |       | Security Agreement, dated as of June 30,  2004, by and between the Registrant, The Wornick Company Right Away Division,  The Wornick Company Right Away Division, L.P., Right Away Management  Corporation and Texas State Bank                                                                                                                                                                                                                                                |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.7 (1)   |       | Pledge Agreement, dated as of June 30, 2004,  between TWC Holding LLC and Texas State Bank                                                                                                                                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.8 (1)   |       | Pledge Agreement, dated as of June 30, 2004,  between the Registrant, The Wornick Company Right Away Division, Right Away  Management Corporation and Texas State Bank                                                                                                                                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.9 (1)   |       | Assets Purchase and Sale Contract, dated December 3,  2003, by and among The Wornick Company, a Nevada corporation, The Wornick  Company Right Away Division, a Nevada corporation, The Wornick Company Right  Away Division, L.P., a Texas limited partnership, Right Away Management  Corporation, a Texas business corporation, as sellers, the Registrant, as  buyer, and Veritas Capital Management II, L.L.C., as a related person of the  Registrant                    |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.10 (1)  |       | Amendment No. 1 to Assets Purchase and Sale  Contract, dated May 4, 2004, by and among The Wornick Company, a Nevada  corporation, The Wornick Company Right Away Division, a Nevada corporation,  The Wornick Company Right Away Division, L.P., a Texas limited partnership,  Right Away Management Corporation, a Texas business corporation, as sellers,  the Registrant, as buyer, and Veritas Capital Management II, L.L.C., as a  related person of the Registrant |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.11 (1)  |       | Amended and Restated Lease Agreement, effective December 30,  1994, between Ronald C. Wornick and Shelf Stable Foods, Inc., as amended  and assigned                                                                                                                                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12 (1)  |       | Standard Industrial Lease, dated March 4,  2003, between The Wornick Company Right Away Division, a Nevada corporation,  and 270 Sharyland, L.P., as assigned                                                                                                                                                                                                                                                                                                                  |

 

52

----

 
| **No.**    | ** ** | **Description**                                                                                                                                                                                                             |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       | ** **                                                                                                                                                                                                                  |
| 10.13 (1)  |       | Standard Form Industrial Building Lease  (Multi-Tenant), dated March 21, 2003, between The Wornick Company, a  Nevada corporation, and First Industrial LP, as assigned                                           |
|       |       |                                                                                                                                                                                                                        |
| 10.14 (1)  |       | Lease Agreement, dated November 29, 1995,  between The Wornick Company, a Nevada corporation, and Ronald C. Wornick, as  amended and assigned                                                                          |
|       |       |                                                                                                                                                                                                                        |
| 10.15 (1)  |       | Contract No. SPO300-03-D-Z107 (MRE Contract),  effective March 31, 2003, between Defense Supply Center Philadelphia and  The Wornick Company Right Away Division, a Nevada corporation, as modified  and assigned |
|       |       |                                                                                                                                                                                                                        |
| 10.16 (1)  |       | Contract No. SPM300-04-D-Z217 (UGR-A  Contract), effective July 19, 2004, between Defense Supply Center  Philadelphia and The Wornick Company Right Away Division, as modified                                    |
|       |       |                                                                                                                                                                                                                        |
| 10.17 (2)  |       | Novation Agreement, entered into as of July 1,  2004, by and among The Wornick Company, a Nevada corporation, The Wornick  Company Right Away Division, L.P. and the United States of America                          |
|       |       |                                                                                                                                                                                                                        |
| 10.18 (2)  |       | Amendment of Solicitation/Modification of  Contract, signed October 14, 2004, between DCMA San Antonio and The  Wornick Company Right Away Division, L.P.                                                              |
|       |       |                                                                                                                                                                                                                        |
| 10.19(4)   |       | Employment Agreement, dated as of April 11,  2005, by and between the Wornick Company and Michael M. Thompson                                                                                                          |
|       |       |                                                                                                                                                                                                                        |
| 10.20(4)   |       | Letter Agreement, dated April 13, 2005, by  and between the Wornick Company and John F. McQuay                                                                                                                         |
|       |       |                                                                                                                                                                                                                        |
| 14.1 (3)   |       | Code of Business Conduct and Ethics                                                                                                                                                                                         |
|       |       |                                                                                                                                                                                                                        |
| 21.1 (1)   |       | Subsidiaries of the Registrant                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                        |
| 31.1 (*)   |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (President and Chief Executive Officer)                                                                                                       |
|       |       |                                                                                                                                                                                                                        |
| 31.2 (*)   |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (Chief Financial Officer)                                                                                                                     |
|       |       |                                                                                                                                                                                                                        |
| 32.1 (*)   |       | Certification pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (President and Chief Executive Officer)                                                  |
|       |       |                                                                                                                                                                                                                        |
| 32.2 (*)   |       | Certification pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (Chief Financial Officer)                                                                |

 

----

| (1)    |   | Included as an exhibit to the Registrant’s  Registration Statement on Form S-4 (File No. 333-119336), filed  with the Commission on September 28, 2004, and incorporated herein  by reference.                       |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                               |
| (2)    |   | Included as an exhibit to Amendment No. 1  to the Registrant’s Registration Statement on Form S-4 (File No. 333-119336),  filed with the Commission on October 27, 2004, and incorporated  herein by reference. |
|   |   |                                                                                                                                                                                                                                               |
| (3)    |   | Included as an exhibit to the Registrant’s  filing of Form 10-K, filed with the Commission on March                                                                                                                                 |

 

53

----

 
|   |   | 31, 2005, and incorporated herein by reference.                                                                                                                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                       |
| (4)    |   | Included as an exhibit to the Registrant’s  Filing on Form 8-K, filed with the Commission on April 11, 2005,  and incorporated herein by reference.    |
|   |   |                                                                                                                                                                       |
| (5)    |   | Included as an exhibit to the Registrant’s  filing on Form 10-Q, filed with the Commission on November 15, 2005  and incorporated herein by reference. |

 

----

| (*) |   | Filed herewith. |
|-----|--------|-----------------|

 

54

----

 

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

 

F-1

----

 

**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directors and Stockholders

of The Wornick Company, a Delaware Corporation

 

In our opinion, the accompanying consolidatedbalance sheets and the related consolidated statements of operations, ofchanges in stockholder’s equity and of cash flows present fairly, in allmaterial respects, the financial position of The Wornick Company and itssubsidiaries, a Delaware corporation (the “Successor”), at December 31,2005 and 2004, and the results of their operations and their cash flows for theyear ended December 31, 2005 and for the period from July 1, 2004through December 31, 2004, in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits provides areasonable basis for our opinion.

 

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

 

F-2

----

 

To the Board of Directors and Stockholders

of The Wornick Company, a Nevada Corporation

 

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

 

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

 

F-3

----

 

**THEWORNICK COMPANY**

**Condensed Consolidated**

**BalanceSheets**

 
| ** **                                                    | ** ** | **December 31,** | ** **  |
|---------------------------------------------------------------|------------|-----------------------|-------------|
| ** **                                                    | ** ** | **2004**              | ** **  | **2005** | ** ** |
| **Assets**                                                    |       |                  |        |   |   |
| Current  assets                                               |       |                  |        |   |   |
| Cash and  cash equivalents                                    |       | $                     | 3,289,030   |   | $ | 17,330,761 |   |
| Trade  accounts receivable, net                               |       | 13,856,294            |        | 19,186,813 |   |
| Inventories                                                   |       | 24,132,116            |        | 27,954,296 |   |
| Prepaid  expenses and other current assets                    |       | 531,106               |        | 625,975 |   |
| Deferred  income taxes                                        |       | 847,442               |        | 1,403,035 |   |
| Total  current assets                                         |       | 42,655,988            |        | 66,500,880 |   |
|                                                          |       |                  |        |   |   |
| Property and  equipment, net                                  |       | 32,794,239            |        | 42,914,227 |   |
| Goodwill                                                      |       | 77,573,207            |        | 77,573,207 |   |
| Intangible  assets, net                                       |       | 21,822,710            |        | 17,128,127 |   |
| Other  noncurrent assets                                      |       | 5,675,939             |        | 5,054,735 |   |
| Total assets                                                  |       | $                     | 180,522,083 |   | $ | 209,171,176 |   |
|                                                          |       |                  |        |   |   |
| **Liabilities  and Stockholder’s Equity**                |       |                  |        |   |   |
| Current  liabilities                                          |       |                  |        |   |   |
| Trade  accounts payable                                       |       | $                     | 6,167,826   |   | $ | 19,802,450 |   |
| Accrued  expenses                                             |       | 3,122,446             |        | 8,331,770 |   |
| Accrued  interest                                             |       | 6,796,875             |        | 6,276,896 |   |
| Taxes  payable                                                |       | 51,950                |        | 977,237 |   |
| Total  current liabilities                                    |       | 16,139,097            |        | 35,388,353 |   |
| Deferred  income taxes and other liabilities                  |       | 1,759,509             |        | 4,456,475 |   |
| Long-term  debt                                               |       | 125,000,000           |        | 125,000,000 |   |
| Total  liabilities                                            |       | 142,898,606           |        | 164,844,828 |   |
|                                                          |       |                  |        |   |   |
| **Commitments  and Contingencies**                            |       |                  |        |   |   |
| Stockholder’s  equity                                    |       |                  |        |   |   |
| Commons  stock $0.01 par value; 10,000,000 shares authorized, |       |                  |        |   |   |
| 1 share  outstanding                                          |       | —                |        | — |   |
| Additional  paid-in capital                                   |       | 37,646,400            |        | 37,732,680 |   |
| Retained  earnings                                            |       | (22,923               | )           | 6,593,668 |   |
| Total  stockholder’s equity                              |       | 37,623,477            |        | 44,326,348 |   |
| Total  liabilities and stockholder’s equity              |       | $                     | 180,522,083 |   | $ | 209,171,176 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-4

----

 

**THEWORNICK COMPANY**

**Condensed Consolidated**

**Statementof Operations**

 
| ** **                                   | ** ** | **Predecessor**                                  | ** **  | **Successor**                                                                | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|-------------|------------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Year Ended  December 31, 2003** | ** **  | **Period from  January 1, 2004  to  June 30, 2004** | ** ** | **Period from  July 1, 2004  to  December 31, 2004** | ** ** | **Year Ended  December 31, 2005** | ** ** |
| ** **                                   | ** ** | ** **                                       | ** **  | ** **                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                    |       | $                                                | 318,370,159 |                                                                         | $          | 80,923,839 |   | $ | 100,380,764 |   | $ | 257,878,405 |   |
| Cost of  sales                               |       | 265,447,298                                      |        | 67,752,882                                                                   |       | 83,307,805 |   | 210,896,928 |   |
| Gross profit                                 |       | 52,922,861                                       |        | 13,170,957                                                                   |       | 17,072,959 |   | 46,981,477 |   |
| Selling,  general and administrative expense |       | 27,008,208                                       |        | 12,458,600                                                                   |       | 9,072,317 |   | 23,338,685 |   |
| Operating  profit                            |       | 25,914,653                                       |        | 712,357                                                                      |       | 8,000,642 |   | 23,642,792 |   |
| Other  (expense) income                      |       |                                             |        |                                                                         |       |   |   |   |   |
| Interest  income                             |       | 244,365                                          |        | 506,553                                                                      |       | 87,029 |   | 209,876 |   |
| Interest  expense                            |       | (537,025                                         | )           | (99,791                                                                      | )          | (7,150,481 | ) | (14,402,238 | ) |
| Other income  (expense), net                 |       | 979,813                                          |        | 369,274                                                                      |       | 3,904 |   | (201,027 | ) |
| Total other  income (expense)                |       | 687,153                                          |        | 776,036                                                                      |       | (7,059,548 | ) | (14,393,389 | ) |
| Income  before income taxes                  |       | 26,601,806                                       |        | 1,488,393                                                                    |       | 941,094 |   | 9,249,403 |   |
| Income tax  (benefit) expense                |       | 439,098                                          |        | 41,052                                                                       |       | 964,017 |   | 2,632,812 |   |
| Net  income/(loss)                           |       | $                                                | 26,162,708  |                                                                         | $          | 1,447,341 |   | $ | (22,923 | ) | $ | 6,616,591 |   |
|                                         |       |                                             |        |                                                                         |       |   |   |   |   |
| Pro forma  income data (unaudited)           |       |                                             |        |                                                                         |       |   |   |   |   |
| Income  before income taxes                  |       | $                                                | 26,601,806  |                                                                         | $          | 1,488,393 |   |   |   |   |   |
| Pro forma  income tax expense                |       | 11,507,106                                       |        | 949,825                                                                      |       |   |   |   |   |
| Pro forma  net income                        |       | $                                                | 15,094,700  |                                                                         | $          | 538,568 |   |   |   |   |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-5

----

 

**THEWORNICK COMPANY**

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

 
| ** **                                 | ** ** | ** **       | ** ** | ** **  | ** ** | ** **     | ** ** | **Unearned**       | ** ** | ** **   | ** **  | ** ** | ** ** |
|--------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|--------------------|------------|--------------|-------------|------------|------------|
| ** **                                 | ** ** | ** **       | ** ** | ** **  | ** ** | ** **     | ** ** | **Shares of**      | ** ** | ** **   | ** **  | ** ** | ** ** |
| ** **                                 | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | **Employee Stock** | ** ** | ** **   | ** **  | ** ** | ** ** |
| ** **                                 | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Ownership**  | ** ** | **Retained**       | ** ** | ** **   | ** **  |
| ** **                                 | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Trust**          | ** ** | **Earnings** | ** **  | **Total**  | ** ** |
| **Predecessor**                            | ** ** | ** **       | ** ** | ** **  | ** ** | ** **     | ** ** | ** **         | ** ** | ** **   | ** **  | ** ** | ** ** |
| **Balances at December 31, 2002**     |       | 5,000,000        |       | $           | 50,000     |           | $          | 27,971,302         |       | $            | (11,990,660 | )          | $          | 7,468,144 |   | $ | 23,498,786 |   |
| Net income                                 |       | —           |       | —      |       | —         |       | —             |       | 26,162,708   |        | 26,162,708 |       |
| Release of earned shares of Employee Stock |       |             |       |        |       |           |       |               |       |         |        |       |       |
| Ownership Trust                            |       | —           |       | —      |       | 5,666,366      |       | 1,827,089          |       | —       |        | 7,493,455  |       |
| **Balances at December 31, 2003**     |       | 5,000,000        |       | 50,000      |       | 33,637,668     |       | (10,163,571        | )          | 33,630,852   |        | 57,154,949 |       |
| Net income                                 |       |             |       |        |       |           |       |               |       | 1,447,341    |        | 1,447,341  |       |
| Release of earned shares of Employee Stock |       |             |       |        |       |           |       |               |       |         |        |       |       |
| Ownership Trust                            |       | —           |       | —      |       | 1,823,044      |       | 521,248            |       | —       |        | 2,344,292  |       |
| **Balances at June 30, 2004**         |       | 5,000,000        |       | $           | 50,000     |           | $          | 35,460,712         |       | $            | (9,642,323  | )          | $          | 35,078,193 |   | $ | 60,946,582 |   |
|                                       |       |             |       |        |       |           |       |               |       |         |        |       |       |
| **Successor**                              |       |             |       |        |       |           |       |               |       |         |        |       |       |
| **Balances at June 30, 2004**         |       | —           |       | $           | —     |           | $          | —             |       | $            | —      |       | $          | — |   | $ | — |   |
| Issuance of Common stock upon formation    |       | 1                |       |        |       | 37,500,000     |       |               |       |         |        | 37,500,000 |       |
| Equity compensation expense                |       | —           |       | —      |       | 146,400        |       | —             |       | —       |        | 146,400    |       |
| Net loss                                   |       | —           |       | —      |       | —         |       | —             |       | (22,923      | )           | (22,923    | )          |
| **Balances at December 31, 2004**     |       | 1                |       | —      |       | 37,646,400     |       | —             |       | (22,923      | )           | 37,623,477 |       |
| Issuance of Common stock                   |       | —           |       | —      |       | —         |       | —             |       | —       |        | —     |       |
| Equity compensation expense                |       | —           |       | —      |       | 86,280         |       | —             |       | —       |        | 86,280     |       |
| Net income                                 |       | —           |       | —      |       | —         |       | —             |       | 6,616,591    |        | 6,616,591  |       |
| **Balances at December 31, 2005**     |       | 1                |       | $           | —     |           | $          | 37,732,680         |       | $            | —      |       | $          | 6,593,668 |   | $ | 44,326,348 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

F-6

----

 

**THEWORNICK COMPANY**

**Condensed Consolidated**

**Statementsof Cash Flows**

 
| ** **                                                                                             | ** ** | **Predecessor**                           | ** ** | **Successor**                                                        | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **Year Ended  December 31,****2003** | ** ** | **Period from  January 1, 2004  to****June 30, 2004** | ** ** | **Period from  July 1, 2004  to  December 31,****2004** | ** ** | **Year Ended  December 31,****2005** | ** ** |
| ** **                                                                                             | ** ** | ** **                                | ** ** | ** **                                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities**                                                              |       |                                      |       |                                                                 |       |   |   |   |   |
| Net income                                                                                             |       | $                                         | 26,162,708 |                                                                 | $          | 1,447,341 |   | $ | (22,923 | ) | $ | 6,616,591 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities           |       |                                      |       |                                                                 |       |   |   |   |   |
| Depreciation  of property and equipment                                                                |       | 2,299,744                                 |       | 1,386,904                                                            |       | 1,755,861 |   | 3,926,058 |   |
| Amortization  of intangibles                                                                           |       | —                                    |       | —                                                               |       | 2,347,290 |   | 4,694,583 |   |
| Amortization  of inventory step-up                                                                     |       | —                                    |       | —                                                               |       | 1,767,037 |   | — |   |
| Amortization  of bond issuance cost                                                                    |       | —                                    |       | —                                                               |       | 294,942 |   | 682,800 |   |
| Loss on  disposal of assets                                                                            |       | 10,648                                    |       | —                                                               |       | 71,500 |   | — |   |
| Deferred  income tax (benefit) expense                                                                 |       | 181,500                                   |       | —                                                               |       | 912,067 |   | 1,707,525 |   |
| Compensation  expense for Employee Stock Ownership Trust shares released and committed to  be released |       | 7,493,455                                 |       | 2,344,292                                                            |       | — |   | — |   |
| Compensation  expense for stock options                                                                |       | 5,364,485                                 |       | 713,433                                                              |       | — |   | — |   |
| Other  stock-based compensation expense                                                                |       | 833,269                                   |       | 3,266,814                                                            |       | 146,400 |   | 86,280 |   |
| Stock  compensation plans                                                                              |       | —                                    |       | (4,270,995                                                           | )          | — |   | — |   |
| Changes in  assets and liabilities                                                                     |       |                                      |       |                                                                 |       |   |   |   |   |
| Trade  accounts receivable                                                                             |       | (1,891,101                                | )          | 1,189,462                                                            |       | (13,856,294 | ) | (5,330,519 | ) |
| Inventories                                                                                            |       | (893,050                                  | )          | (4,693,075                                                           | )          | 1,163,623 |   | (3,822,180 | ) |
| Prepaid  expenses and other current assets                                                             |       | (519,341                                  | )          | 162,149                                                              |       | (531,107 | ) | (94,869 | ) |
| Other  noncurrent asset                                                                                |       | (242,329                                  | )          | (56,901                                                              | )          | (62,113 | ) | (61,596 | ) |
| Trade  accounts payable and accrued expenses                                                           |       | (3,975,129                                | )          | (1,961,207                                                           | )          | 9,290,272 |   | 18,843,948 |   |
| Accrued bond  interest                                                                                 |       | —                                    |       | —                                                               |       | 6,796,875 |   | (519,979 | ) |
| Taxes  payable                                                                                         |       | (273,347                                  | )          | —                                                               |       | 51,950 |   | 925,287 |   |
| Net cash  provided by (used in) operating activities                                                   |       | 34,551,512                                |       | (471,783                                                             | )          | 10,125,380 |   | 27,653,929 |   |
|                                                                                                   |       |                                      |       |                                                                 |       |   |   |   |   |
| **Cash  flows from investing activities**                                                              |       |                                      |       |                                                                 |       |   |   |   |   |
| Payments  received on notes receivable                                                                 |       | 810,705                                   |       | 610,100                                                              |       | — |   |   |   |
| Proceeds  from the sale of investments                                                                 |       | 3,000,000                                 |       | 19,988,514                                                           |       | — |   |   |   |
| Purchase of  investments                                                                               |       | (8,993,000                                | )          | (30,007,514                                                          | )          | — |   |   |   |
| Business  acquired                                                                                     |       | —                                    |       | —                                                               |       | (165,035,252 | ) |   |   |
| Capital  expenditures                                                                                  |       | (12,525,994                               | )          | (2,382,720                                                           | )          | (4,301,098 | ) | (13,612,198 | ) |
| Net cash  used in investing activities                                                                 |       | (17,708,289                               | )          | (11,791,620                                                          | )          | (169,336,350 | ) | (13,612,198 | ) |
|                                                                                                   |       |                                      |       |                                                                 |       |   |   |   |   |
| **Cash  flows from financing activities**                                                              |       |                                      |       |                                                                 |       |   |   |   |   |
| Change in  book overdrafts                                                                             |       | 587,080                                   |       | 243,027                                                              |       | — |   | — |   |
| Net  (decrease) increase in the line of credit                                                         |       | (9,400,000                                | )          | 8,700,000                                                            |       | — |   | — |   |
| Proceeds  from issuance of long-term debt                                                              |       | 61,653                                    |       | —                                                               |       | 125,000,000 |   | — |   |
| Principal  payments on long-term debt                                                                  |       | (3,843,660                                | )          | (629,305                                                             | )          | — |   | — |   |
| Proceeds  from issuance of common stock                                                                |       | —                                    |       | —                                                               |       | 37,500,000 |   | — |   |
| Net cash  (used in) provided by financing activities                                                   |       | (12,594,927                               | )          | 8,313,722                                                            |       | 162,500,000 |   | — |   |
| Net increase  (decrease) in cash and cash equivalents                                                  |       | 4,248,296                                 |       | (3,949,681                                                           | )          | 3,289,030 |   | 14,041,731 |   |
|                                                                                                   |       |                                      |       |                                                                 |       |   |   |   |   |
| **Cash and  cash equivalents**                                                                         |       |                                      |       |                                                                 |       |   |   |   |   |
| Beginning of  period                                                                                   |       | 1,042,371                                 |       | 5,290,667                                                            |       | — |   | 3,289,030 |   |
| End of  period                                                                                         |       | $                                         | 5,290,667  |                                                                 | $          | 1,340,986 |   | $ | 3,289,030 |   | $ | 17,330,761 |   |
|                                                                                                   |       |                                      |       |                                                                 |       |   |   |   |   |
| **Supplemental  disclosure of cash flow information**                                                  |       |                                      |       |                                                                 |       |   |   |   |   |
| Cash paid  during the period for interest                                                              |       | $                                         | 537,025    |                                                                 | $          | 77,114 |   | $ | 58,663 |   | $ | 13,673,011 |   |
| Taxes paid  during the period, net of refund                                                           |       | 480,354                                   |       | 41,052                                                               |       | 122,925 |   | — |   |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-7

----

 

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

 

The Wornick Company, a Delaware corporation (the “Company”or “Successor”), an acquisition vehicle formed by The Veritas Capital Fund II,L.P., and its general partner, Veritas Capital Management II, L.L.C.(collectively “Veritas”), entered into an Assets Purchase and Sale Contractwith The Wornick 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. The Assets Purchase andSale Contract was consummated on June 30, 2004, and resulted in thepurchase by the Successor and its subsidiaries, and the sale by the Predecessorand its subsidiaries, of the business of the Predecessor and its subsidiariesas a going concern, including substantially all of the operating assets of thePredecessor and its subsidiaries.

 

The Company produces, packages and distributesextended shelf-life foods, both shelf stable and frozen, in flexible pouchesand semi-rigid containers, primarily for the U.S. Department of Defense andcommercial customers.

 

As discussed above, the Assets Purchase and SaleContract was consummated on June 30, 2004. As such, the financialinformation presented represents: (i) the Consolidated Balance Sheet ofthe Successor at December 31, 2004, and December 31, 2005; (ii) theConsolidated Statements of Operations of the Predecessor for the year ended December 31,2003 and the six-month period ended June 30, 2004, and of the Successorfor the six-month period ended December 31, 2004 and for the year ended December 31,2005; (iii) the Consolidated Statement of Changes in Stockholder’s Equityof the Predecessor for the year ended December 31, 2003 and the six-monthperiod ended June 30, 2004 and of the Successor for the six-month periodended December 31, 2004 and the year ended December 31, 2005 and (iv) theConsolidated Statements of Cash Flows of the Predecessor for the year ended December 31,2003 and the six-month period ended June 30, 2004, and the Successor forthe six-month period ended December 31, 2004 and for the year ended December 31,2005.

 

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

 

On June 30, 2004 (the “Acquisition Date”),pursuant to the Assets Purchase and Sale Contract described above in Note 1,the Company acquired all of the operating assets of the Predecessor. Theacquisition was financed through a combination of debt and equity issuances. Thepurchase price of $165.0 million included approximately $10.1 million oftransaction costs. Goodwill of $77.6 million represented the excess of theacquisition cost over the estimated fair value of the identifiable assetsacquired. The identifiable intangible assets relate to the value of existinglong-term customer supply contracts in place at the Acquisition Date. Thepurchase price has been allocated to the assets acquired in accordance with thepurchase method of accounting as follows:

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

 

In financing the acquisition, the Company received$165.5 million in proceeds from debt and equity financing, including a $3.0million advance on a working capital line.

 

F-8

----

 

Summary selected pro forma information of thePredecessor as though the transaction were completed at the beginning of therespective period presented (and as though the Company were taxed as a C-Corporation)is as follows:

 

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

 

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

 

**Basis of Presentation**

The Company’s consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted inthe United States of America. The consolidated financial statements include theaccounts of The Wornick Company and its subsidiaries. All significantintercompany balances and transactions have been eliminated in consolidation.

 

**Cash and Cash Equivalents**

The Company considers all highly liquid debtinstruments with original maturities of three months or less to be cash andcash equivalents.

 

**Accounts Receivable**

Accounts receivable are recorded at the invoicedamount and do not bear interest. The allowance for doubtful accounts representsthe Company’s best estimate of probable credit losses in its existing accountsreceivable. The Company continuously reviews the accuracy of its allowance fordoubtful accounts. Historically the Company has had very minimal bad debts dueto its customer base. In addition, the Company does not have any off-balancesheet credit exposure related to its customers.

 

**Fair Value of Financial Instruments**

The recorded values of financial instruments,including accounts receivable, other assets, and accounts payable, approximatefair value due to their short maturity. The carrying value of the revolvingline of credit (zero at December 31, 2004 and 2005) approximates fairvalue due to its variable interest rate. The recorded value of the long-termdebt approximates fair value based on borrowing rates currently available tothe Company for financing arrangements with similar terms and averagematurities.

 

**Concentration of Credit Risk**

Financial instruments that potentially subject theCompany to concentration of credit risk have historically consisted of cash andcash equivalents, trade accounts receivable, and marketable securities. TheCompany’s cash and cash equivalents are held at financial institutions and may attimes exceed federally insured limits. To minimize risk, the Company maintainsits cash and cash equivalents at financial institutions with high creditratings.  The Company’s trade accountsreceivable are concentrated with a significant customer. See Note 12 foradditional information regarding this significant customer.

 

**Derivative Financial Instruments**

From time to time, the Company enters into foreigncurrency forward contracts to manage certain exposures to fluctuations inforeign currency exchange rates for the Canadian dollar. Changes in the fairvalue of derivatives are recorded in current earnings along with the change inthe fair value of the underlying hedged item.

 

Cash flows from financial instruments are recognizedin the consolidated statements of cash flows in a manner consistent with theunderlying hedged transactions. At December 31, 2003 and June 30,2004, the Predecessor had no outstanding derivative instruments. At December 31,2004, the Company had one

 

F-9

----

 

outstanding derivative instrument, the fair value ofwhich was not significant. During fiscal year 2005, all sales were denominatedin U.S. dollars and therefore the Company did not enter into any foreigncurrency forward contracts.

 

**Inventories**

Inventories are stated at the lower of cost ormarket, with cost being determined using the first-in, first-out (“FIFO”)method. Costs included in inventories consist of materials, labor, and fixedand variable manufacturing overhead which are related to the purchase andproduction of inventories.

 

**Property and Equipment**

Property and equipment are stated at cost. Depreciationand amortization of property and equipment are provided using the straight-linemethod over the estimated useful lives of the assets, which range as follows:

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

 

When property and equipment are retired or sold, thecost and related accumulated depreciation are removed from the accounts withany gain or loss recognized in operations. Repairs and maintenance are chargedto expense as incurred.

 

The Company assesses the impairment of property andequipment whenever events or changes in circumstances indicate that thecarrying amount of the asset may not be recoverable. An impairment losswould be recognized when the carrying amount of the asset exceeds the estimatedundiscounted future cash flows expected to result from the use of the asset andits eventual disposition. The impairment to be recorded would be the excess ofthe assets carrying value over its fair value. Fair value would be determinedbased upon the best information available in the circumstances including quotedprices or other valuation techniques.

 

The Company maintains asset retirement obligationsin connection with lease arrangements on its manufacturing facilities. Therelated asset retirement cost are recognized as expense over the lease term.

 

**Goodwill**

Goodwill is stated at cost and not amortized.  The carrying value of goodwill is tested forimpairment at least annually. The recoverability of goodwill is based upon thefair value of the Company which is determined by using a discounted cash flowanalysis. The Company has completed its annual impairment test of goodwill andhas determined that there is no impairment at December 31, 2005.

 

**Intangibles**

Contract or separable intangible assets that havefinite lives are being amortized against income using the straight-line methodover their estimated useful lives, with periods ranging up to eight years. Thestraight-line method of amortization reflects an appropriate allocation of thecost of the intangible assets to earnings in proportion to the amount ofeconomic benefits obtained by the Company in each reporting period. The Companytests finite-lived intangible assets for impairment whenever there is animpairment indicator. Intangible assets are tested for impairment by comparinganticipated undiscounted future cash flows from operations to net book value.

 

**Shipping and Handling Fees andCosts**

The Company classifies shipping and handling feesand costs as a component of cost of sales.

 

F-10

----

 

**Income Taxes**

Prior to the Transaction and sale of assets, thePredecessor was taxed as a Sub-Chapter S corporation for federal incometax purposes. Prior to January 2003, the Predecessor was subject to TexasFranchise Tax. Beginning in January 2003, the Predecessor (and theSuccessor) were not subject to Texas Franchise Tax. In connection with thetransaction, effective July 1, 2004, the Successor has been taxed as aC-Corporation.

 

Deferred tax assets and liabilities are recognizedfuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax basis and operating loss and tax carryforwards. Deferred taxassets and liabilities were measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax status or tax rates is recognized in income inthe period that includes the enactment date. The deferred tax assets arereviewed for recoverability and valuation allowances are provided as necessary.

 

**Revenue Recognition**

We recognize revenue from product sales when titleand risk of loss transfers to the customer, which is generally upon shipment.We record estimated discounts as a reduction in revenue in the same periodrevenue is recognized based on historical experience.

 

Our U.S. Government contracts typically fall intotwo categories, fixed-price contracts and indefinite delivery, indefinitequantity contracts. In a fixed-price contract, the price is based on apre-determined rate and is not subject to adjustment. Indefinite delivery,indefinite quantity contracts are subject to component pricing . This componentpricing is subject to retroactive audit adjustment by the Department of Defense.The magnitude of any such adjustment has historically been immaterial.

 

**Use of Estimates in FinancialStatements**

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual results coulddiffer from those estimates.

 

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

As permitted by the Statement of FinancialAccounting Standards (“SFAS”) No. 123, *Accountingfor Stock-Based Compensation*, the Predecessor elected to apply theprovision of Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“OpinionNo. 25”), in recognizing costs associated with the Predecessor’s stockoption plans. Under Opinion No. 25, compensation was measured as thedifference between the option’s exercise price and the fair value of theunderlying shares at the measurement date and subsequent changes in the fairvalue of the underlying shares through the date the option is exercised orotherwise settled. The measurement date was the first date on which both thenumber of shares subject to the option and the option exercise price are known.As described further in Note 10, all of the Predecessor’s optionarrangements were compensatory. The related compensation expense has been determinedbased upon the estimated fair values of the Predecessor’s common stock. Asdescribed further in Note 11, the Successor currently has no stockcompensation arrangements except for the issuance to certain members ofmanagement member units as of the acquisition date of TWC Holding LLC (the “Company’sParent”).

 

**Reclassification**

Certain reclassifications were made to the 2004balance sheet to conform with the current year presentation. Thereclassifications had no effect on previously reported net income orstockholders equity.

 

F-11

----

 

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

 

**Inventories**

A summary of inventories is as follows:

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

 

**Property and Equipment, Net**

A summary of property and equipment, net is asfollows:

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

 

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

 

**Accrued Expenses**

Accrued expenses are comprised of the following:

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

 

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

In connection with the acquisition described inNote 2, a portion of the purchase price was allocated to identifiableintangible assets related to the value of long-term customer supply contractsin place at the Acquisition Date. The original value of these contracts was$24,170,000 and their useful lives range from three to eight years. Expenserelated to amortization of intangible assets for the six-months ended

 

F-12

----

 

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

 

Scheduled amortization of these assets is asfollows:

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

 

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

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

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

 

In connection with the financing of the acquisitiondescribed in Note 2, the Company issued $125.0 million 10-7/8% SeniorSecured Notes due 2011 and also secured additional financing through aRevolving Loan Agreement which provides the Company $15.0 million ofrevolving loan financing through June 30, 2009, with an additionalrevolving credit facility of $10.0 million becoming available upon certainevents. Amounts outstanding under the Revolving Loan Agreements are due June 30,2009, and amounts outstanding are subject to limitations as determined by acalculated borrowing base. Interest on amounts outstanding under the RevolvingLoan Agreement will vary at a fluctuating rate per annum that is equal to theprime rate (5.25% and 7.25% at December 31, 2004 and December 31,2005, respectively) as published daily by The Wall Street Journal. Amountsoutstanding under the Revolving Loan Agreement are collateralized bysubstantially all of the operating assets of the Company. The lien on suchcollateral is senior to the lien on the collateral that secures the seniorsecured notes. In connection with completing the acquisition, the Companyborrowed $3.0 million against the revolving loan facility to fund theacquisition and initial working capital of the Successor. This amount wassubsequently repaid. There were no amounts outstanding under the revolving loanagreement at December 31, 2005 and 2004.

 

The senior secured notes are collateralized bysubstantially all assets and other property of the Company. The lien on suchcollateral, however, is subordinate to the lien on the collateral securing theRevolving Loan Agreement. In addition, the terms and conditions of the SeniorSecured Notes limit the Company’s ability to pay dividends or other payments toits parent (TWC Holding LLC). Interest on the senior secured notes is payablesemi-annually. Interest expense on the senior secured notes and revolving loanfacility, exclusive of bond cost amortization, for the year ended December 31,2005 amounted to $13,640,177 and $79,261, respectively.

 

Amounts due under the senior secured notes and therevolving loan facility are subject to an intercreditor agreement. The Companyis required to meet certain financial covenants related primarily to minimum

 

F-13

----

 

working capital amounts and minimum working capitalratios as well as minimum profitability and minimum net worth calculations. At December 31,2005 we were not in violation of any of the covenants covering our revolvingloan agreement or our senior secured notes.

 

On February 11, 2005 our parent, TWC HoldingLLC (the “Parent Company”) , and its wholly-owned finance subsidiary, TWCHolding Corp., co-issued their 13.875% Senior PIK Notes due 2011, or the “SeniorPIK Notes,” in the approximate aggregate principal amount of $62,259,000 with adiscount of approximately $36,259,000. The Senior PIK Notes earn interest atthe rate of 13.875% per annum, mature on August 15, 2011 and are unsecuredobligations of TWC Holding LLC and TWC Holding Corp. Neither the Company norany of its subsidiaries guaranteed the Senior PIK notes. The notes limit theCompany’s ability to incur additional indebtedness and pay dividends or makeother distributions as well as to make certain investments and sell certainassets or merge with or into other companies. Because our ParentCompany is a holding company with no operations and has only itsinvestment in the Company, and because TWC Holding Corp. has no independentoperations or assets, future cash flows or assets of the Company through 2011 may berequired to service the $62.3 million Senior PIK notes upon their maturity.

 

The pro forma effect of the additional interestexpense on our net income assuming the Company issued the Senior PIK notes andsuch issuance took place at the beginning of the year would have resulted ininterest expense (pre-tax) of approximately $3,733,000 for the year ended December 31,2005.

 

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

In connection with the transaction as discussed inNote 2, the Successor entity is taxed as a C-Corporation whereas thePredecessor was a pass-through entity qualified under Subchapter S of theInternal Revenue Code.

 

F-14

----

 

Income tax expense (benefit) consist of the following:

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

 

Prior to January 2003, the Predecessor wassubject to Texas franchise tax. Subsequent to December 31, 2002, neitherthe Predecessor nor the Company are subject to Texas franchise tax. As such allremaining deferred Texas franchise taxes totaling $181,500 were reversed during2003. The current tax expense of $51,950 and ($51,950) at December 31,2004 and 2005, respectively, relate primarily to local municipal taxes thatwere subsequently reversed during 2005 for municipal income taxes at ourCincinnati facility.

 

In connection with the transaction discussed inNote 2, the Company is taxed as a C-Corporation whereas the Predecessorwas a pass-through entity which qualified under Subchapter S of theInternal Revenue Code.

 

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

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

 

F-15

----

 

The tax effects of temporary differences that giverise to significant portions of the deferred income tax assets and deferredincome tax liabilities at December 31, 2004 and 2005, are as follows:

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

 

At December 31, 2004 a valuation allowance wasprovided for against the deferred tax assets as management believed that it wasmore likely than not that these tax benefits would not have been realized basedupon the existing uncertainty at that time regarding whether the Company wouldgenerate future taxable income due to the additional charges related toamortization of intangibles, bond issuance cost and goodwill. At December 31,2005, the valuation allowance was subsequently reversed.

 

The accompanying Consolidated Statements ofOperations of the Predecessor also presents pro forma net income data whichassumes the Predecessor was taxed as a C-Corporation for the periods presentedutilizing a federal income tax rate of 35%. The difference between the proforma effective income tax rate and the federal statutory rate relatesprimarily to permanent differences between book and tax reporting on theEmployee Stock Option Plan (“ESOP”) and certain other local taxes.

 

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

 

Each of the Company’s divisions leases facilitiesfrom the Predecessor’s former president and chief executive officer and formersole shareholder. These leases are each for a 15-year period expiring in 2010and require the Company to pay all maintenance, taxes, and insurance. Monthlyrentals are subject to increases based on the consumer price index (“CPI”) forthe previous two years, but are never subject to decreases. Each of theseleases has been classified as operating leases.

 

The Predecessor paid approximately $1,310,000 and$592,000 in total rent expense for the years ended December 31, 2003 andfor the six-month period ended June 30, 2004, respectively. The Companypaid approximately $592,000 for the six-month period ended December 31,2004 and $1,181,000 for the year ended December 31, 2005.

 

The Company is also obligated under operating leasesfor certain manufacturing and office facilities and equipment. Rental expensefor these leases for the years ended December 31, 2003 and for thesix-month period ended June 30, 2004, for the Predecessor wereapproximately $1,799,000 and $1,203,000, respectively. The Company paidapproximately $1,164,000 in rental expense for these same locations for thesix-month period ended December 31, 2004 and $2,228,000 for the year endedDecember 31, 2005.

 

Future minimum lease payments under noncancellableoperating leases with remaining lease terms in excess of one year as of December 31,2005, are as follows:

 

F-16

----

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

 

**9.             DefinedContribution Employee Benefit Plans**

 

In connection with the Assets Sale and Purchasediscussed in Note 2, the Company adopted The Wornick Company 401(k)Savings Plan (the “401(k) Plan”), a plan similar in all material respects tothe plan available under the Predecessor, which covers all eligible employeeswho have met the service requirement. Effective January 1, 2003, thePredecessor modified its 401(k) Plan which allowed plan participants to electto defer up to 50% of their compensation for the year, but not to exceedallowable limits prescribed under IRS regulations. The Company will make amatching contribution at 100% for the first 3% and 50% for the subsequent 2% ofthe participant’s elective compensation deferral. Prior to the modification, aplan participant may have elected to defer up to 15% of compensation forthe plan year. The Company would make a matching contribution of 50% of thefirst 6% of an employee’s compensation deferral. The Predecessor contributedapproximately $413,000 and $222,000 to the 401(k) Plan for the years ended December 31,2003 and for the six-month period ended June 30, 2004, respectively. TheSuccessor contributed approximately $202,000 to the 401(k) Plan for thesix-month period ended December 31, 2004, and $538,000 for the year ended December 31,2005, respectively.

 

The Company maintains various defined contributionwelfare benefit plans to provide medical, dental and life insurance benefitscovering active eligible full time employees. The life insurance and dentalplans are fully insured plans whereby the Company pays annual premiums. Themedical plan is subject to self-insured maximum contributions for which theCompany maintains adequate reserves.

 

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

 

The Predecessor Company had option plans for itsexecutives, key personnel and Board of Directors for which 548,676 fully vestedoptions were outstanding with exercise prices ranging from $3.58 to $5.89. Theterms of each of the option awards provided the individual with the right toimmediately sell back to the Predecessor Company, at fair value, any stockobtained through the exercise of any option award. Under accounting principlesgenerally accepted in the United States of America, all of the options above weretherefore accounted for as compensatory plans with compensation expense beingrecorded based upon the fair value of the underlying stock through the date theaward was exercised or otherwise settled. Total compensation expense related toall of the above options was $5,364,485 for the year ended December 31,2003, and $713,433 for the six-month period ended June 30, 2004.

 

F-17

----

 

A summary of transactions for all options follows:

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

 

**Other Predecessor Stock-basedCompensation Plans**

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

 

**Predecessor Employee StockOwnership Plan**

In November 1995, the Predecessor Companyestablished an employee stock ownership plan, The Wornick Company EmployeeStock Ownership Plan, and a trust, The Wornick Company Employee Stock OwnershipTrust (“ESOT”), to provide all eligible employees of the Predecessor Companythe opportunity to obtain beneficial interests in the stock of the Predecessor Company.The ESOP authorized the ESOT to purchase all of the Predecessor Company’scommon stock outstanding, 5 million shares, from the sole shareholder for $34.0million. The Predecessor Company entered into an agreement with a bank toborrow $34.0 million in connection with the ESOT that was loaned on thesame terms to the ESOT.

 

The loan obligation of the ESOT was consideredunearned employee benefit expense and, as such, was recorded as a reduction ofthe Predecessor Company’s stockholder’s equity. The Predecessor Companycontributions were made to the ESOT in such amounts as determined by thePredecessor Company’s Board of Directors. The Predecessor Company contributedsufficient amounts to the ESOT that, together with dividends on unallocatedshares held by the ESOT and other earnings on ESOT nonstock assets enabled theESOT to service principal and interest payments on the note payable to the PredecessorCompany.

 

Compensation cost was recognized as shares werecommitted to be released based on their average fair values. The Predecessor Companyrecorded compensation costs totaling $7,493,455 for the year ended December 31,2003, and $2,344,292 for the six-month period ended June 30, 2004. Theexcess of the current estimated fair value of the shares released over theircost totaled $5,666,366 for the year ended December 31, 2003, and$1,823,044 for the six-month period ended June 30, 2004 (based upon theshares expected to be released in 2004), and was recorded as an increase toadditional paid-in capital.

 

F-18

----

 

As long as the loan to the ESOT was outstanding,shares of common stock were to be released and allocated to eligible employeeswhen loan payments are received. The number of shares allocated to participantswas a formula based on payroll. The number of shares allocated and unallocatedat December 31, 2003, and for the six-month period ended June 30,2004 (based upon shares expected to be allocated), was as follows:

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

 

**11.****                              ****Successor Stock CompensationPlan**

 

Our parent company, TWC Holding LLC has two classesof membership interests, Class A interests and Class B interests. Inconnection with completing the Acquisition, certain members of our managementand outside directors received Class B interests. Pursuant to the terms ofthe operating agreement governing TWC Holding LLC, the holders of Class Binterests are entitled to receive up to 7.875%, in aggregate, of alldistributions made by TWC Holding LLC after the holders of Class Ainterests have received a return of their invested capital provided that theholders of the Class A interests have received an 8% per annum internalrate of return on their invested capital. The Class B interests aresubject to a five-year vesting schedule with any unvested interestreverting to the holders of Class A interests. Because these Class Binterests were issued to members of management and directors of the Company,these awards are considered to be compensatory to our Company over the vestingperiod. The total fair value of the original Class B interests as of theirissuance date was determined to be $1,464,000. During the period ended April 2,2005, certain members of management terminated their employment with Wornickand forfeited their Class B interests. In addition subsequent to October 1,2005 certain members of management relinquished their Class B interests. Assuch, previously recognized compensation expense of approximately $78,000 wasreversed in the thirteen week period ended April 2, 2005 related to thevesting provisions of these Class B interests. As it relates to members ofmanagement that relinquished their Class B interests in November 2005,previously recognized compensation expense of approximately $34,000 wasreversed during the thirteen week period ended October 1, 2005.

 

On April 11, 2005 and November 11, 2005,TWC Holding LLC issued additional Class B membership interests to recentlyretained senior management of the Wornick. These Class B membershipinterests will vest over a five year period. Net compensation expense for all Class Bmembership interests for the year ended December 31, 2005 wasapproximately $86,000.

 

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

 

Major Customer:

The Company’s sales are predominantly derived from theU.S. Government. During the year ended December 31, 2003 and the six-monthperiod ended June 30, 2004, Predecessor sales to the U.S. Government accountedfor approximately $284,699,000 and $66,799,000 or 89% and 83% of net revenuerespectively. Successor sales to the U.S. Government for the six-month periodended December 31, 2004 and for the year ended December 31, 2005,accounted for approximately $82,955,000 and $209,936,000 or 83% and 81% of netrevenue respectively. Approximately $10,132,000 or 73% and $14,025,000 or 73%of net accounts receivable was attributable to this major customer as of December 31,2004 and 2005, respectively. The loss of all or a substantial portion of oursales to the U.S. Government would have a material adverse effect on ourfinancial position, results of operations and cash flows.

 

F-19

----

 

Related Party:

The Company has an agreement with Veritas. Veritas,through TWC Holding LLC (The Company’s parent) owns essentially all of theCompany’s common stock. Under the terms of the agreement Veritas providesmanagement and advisory services to the Company for an annual management fee of$300,000. Fees charged under the management services agreement for the sixmonth period ended December 31, 2004 and year ended December 31, 2005were $150,000 and $300,000, respectively.

 

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

 

The Company is involved in various claims and legalactions arising in the ordinary course of business. In the opinion ofmanagement, the ultimate disposition of these matters will not have a materialadverse effect on the Company’s financial position, results of operations orliquidity.

 

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

 

The Company has two operating segments Right AwayDivision (“RAD”) and Prepared Foods Division (“PFD”). RAD is located in Texasand primarily sells its product to the U.S. Department of Defense. PFD islocated in Ohio and also sells directly to the U.S. Department of Defense aswell as to commercial branded food companies and inter-segment sales to RAD. Managementevaluates segment performance based on several factors, including operatingprofit.

 

The accounting policies of the operating segmentsare generally the same as those described in Note 3. Inter-segmenttransactions have been eliminated.

 

Consistent with the Company’s (and the Predecessor’s)internal management reporting, corporate operations for the Predecessor includeinvestment and interest income, compensation expense for the ESOT, stock andother stock-based compensation plans and overhead costs. Corporate assetsprimarily include investments in subsidiary guarantors (which are eliminated inconsolidation), other investments and goodwill. Other significant noncash itemsinclude compensation expense for ESOT shares released and committed to bereleased as well as compensation expense related to stock options and otherstock-based compensation plans.

 

F-20

----

 

The Company’s sales by product line for the periodsindicated are as follows:

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

 

F-21

----

 

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

 
| **Operating Segments**                     | ** ** | **Trade  Revenue** | ** ** | **Inter-segment  Revenue** | ** ** | **Operating  Profit  (Loss)** | ** ** | **Depreciation/  Amortization** | ** ** | **Other  Significant  Noncash  Charges** | ** ** | **Total  Assets** | ** ** | **Capital  Expenditures** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|----------------------------|------------|-------------------------------|------------|---------------------------------|------------|------------------------------------------|------------|-------------------|------------|---------------------------|------------|
| **Right Away Division**                         |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                            |       | 268,457,723        |       | —                     |       | 25,648,073                    |       | 741,323                         |       | —                                   |       | 33,752,073        |       | 2,597,137                 |       |
| Six-month period ended   June 30, 2004     |       | 65,266,652         |       | —                     |       | 4,274,494                     |       | 486,473                         |       | —                                   |       | —            |       | 773,591                   |       |
| Six-month period ended   December 31, 2004 |       | 79,631,256         |       | —                     |       | 3,936,779                     |       | 1,594,430                       |       | —                                   |       | 36,053,360        |       | 643,810                   |       |
| 2005                                            |       | 203,924,739        |       |                       |       | 35,548,583                    |       | 2,154,690                       |       | —                                   |       | 52,432,775        |       | 446,117                   |       |
| **Prepared Foods**                              |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                            |       | 49,912,436         |       | 68,868,033                 |       | 14,727,466                    |       | 1,537,156                       |       | —                                   |       | 33,119,145        |       | 9,922,912                 |       |
| Six-month period ended   June 30, 2004     |       | 15,657,187         |       | 19,815,600                 |       | 4,413,202                     |       | 891,518                         |       | —                                   |       | —            |       | 1,609,129                 |       |
| Six-month period ended   December 31, 2004 |       | 20,749,508         |       | 30,905,753                 |       | 5,812,388                     |       | 4,275,758                       |       | —                                   |       | 66,601,215        |       | 3,657,288                 |       |
| 2005                                            |       | 53,953,666         |       | 49,684,667                 |       | 1,059,477                     |       | 6,465,951                       |       | —                                   |       | 76,876,168        |       | 13,166,081                |       |
| **Corporate**                                   |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                            |       | —             |       | —                     |       | (14,526,556                   | )          | 21,265                          |       | 13,691,209                               |       | 71,719,385        |       | 5,945                     |       |
| Six-month period ended   June 30, 2004     |       | —             |       | —                     |       | (7,975,339                    | )          | 8,913                           |       | 6,324,539                                |       | —            |       | —                    |       |
| Six-month period ended   December 31, 2004 |       | —             |       | —                     |       | (1,748,525                    | )          | 294,942                         |       | —                                   |       | 111,269,730       |       | —                    |       |
| 2005                                            |       | —             |       |                       |       | (12,965,268                   | )          | 682,800                         |       | —                                   |       | 118,161,150       |       |                      |       |
| **Eliminations**                                |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                            |       | —             |       | (68,868,033                | )          | 65,670                        |       | —                          |       | —                                   |       | (51,881,906       | )          | —                    |       |
| Six-month period ended   June 30, 2004     |       | —             |       | (19,815,600                | )          | —                        |       | —                          |       | —                                   |       |              |       | —                    |       |
| Six-month period ended   December 31, 2004 |       | —             |       | (30,905,753                | )          | —                        |       | —                          |       | —                                   |       | (33,402,222       | )          | —                    |       |
| 2005                                            |       | —             |       | (49,684,667                | )          | —                        |       | —                          |       | —                                   |       | (38,298,917       | )          |                      |       |
| **Total Company**                               |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2003                                            |       | 318,370,159        |       | —                     |       | 25,914,563                    |       | 2,299,744                       |       | 13,691,209                               |       | 86,708,697        |       | 12,525,994                |       |
| Six-month period ended   June 30, 2004     |       | 80,923,839         |       | —                     |       | 712,357                       |       | 1,386,904                       |       | 6,324,539                                |       | —            |       | 2,382,720                 |       |
| Six-month period ended   December 31, 2004 |       | 100,380,764        |       | —                     |       | 8,000,642                     |       | 6,165,130                       |       | —                                   |       | 180,522,083       |       | 4,301,098                 |       |
| 2005                                            |       | 257,878,405        |       | —                     |       | 23,642,792                    |       | 9,303,441                       |       | —                                   |       | 209,171,176       |       | 13,612,198                |       |

 

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

 

In connection with financing of the Assets Purchasetransaction described in Note 2, the Company issued $125.0 million ofSenior Notes due 2011. The notes are general obligations of the Company and arejointly and severally, irrevocably and unconditionally, guaranteed on a seniorsecured basis by each of the Successor entity’s present and future Subsidiaries(the “Subsidiary Guarantors”).

 

F-22

----

 

The following information presents the consolidatedbalance sheet of the Successor’s Subsidiary Guarantors at December 31,2004 and December 31, 2005, the statement of operations of the Predecessorfor the year ended December 31, 2003 and the six-month period ended June 30,2004 and of the Successor for the six-month period ended December 31, 2004and the year ended December 31, 2005, and the statement of cash flows ofthe Predecessor for the year ended December 31, 2003 and the six-monthperiod ended June 30, 2004 and of the Successor’s Subsidiary Guarantorsfor the six-month period ended December 31, 2004 and for the year ended December 31,2005:

 

Condensed consolidated balance sheet at December 31,2004:

 
| ** **                                       | ** ** | **Successor** | ** **  |
|--------------------------------------------------|------------|---------------|-------------|
| ** **                                       | ** ** | **Parent**    | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Assets**                                       |       |          |        |   |   |   |   |   |   |
| Current  assets                                  |       |          |        |   |   |   |   |   |   |
| Cash and  cash equivalents                       |       | $             | 1,085,474   |   | $ | 2,203,556 |   | $ | — |   | $ | 3,289,030 |   |
| Trade  accounts receivable                       |       | 4,413,429     |        | 9,442,865 |   | — |   | 13,856,294 |   |
| Interdivision  receivables                       |       | 4,822,266     |        | — |   | (4,822,266 | ) | — |   |
| Inventories                                      |       | 10,491,680    |        | 13,640,436 |   | — |   | 24,132,116 |   |
| Prepaid  expenses and other current assets       |       | 246,316       |        | 284,790 |   | — |   | 531,106 |   |
| Deferred  Taxes                                  |       | 847,442       |        | — |   | — |   | 847,442 |   |
| Total  current assets                            |       | 21,906,607    |        | 25,571,647 |   | (4,822,266 | ) | 42,655,988 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Investments  in subsidiary guarantors            |       | 28,579,956    |        | — |   | (28,579,956 | ) | — |   |
| Property and  equipment, net                     |       | 25,845,617    |        | 6,948,622 |   | — |   | 32,794,239 |   |
| Goodwill                                         |       | 77,573,207    |        | — |   | — |   | 77,573,207 |   |
| Intangible  assets, net                          |       | 18,434,375    |        | 3,388,335 |   |   |   | 21,822,710 |   |
| Other  noncurrent assets                         |       | 5,531,183     |        | 144,756 |   | — |   | 5,675,939 |   |
| Total assets                                     |       | $             | 177,870,945 |   | $ | 36,053,360 |   | $ | (33,402,222 | ) | $ | 180,522,083 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| **Liabilities  and Stockholder’s Equity**   |       |          |        |   |   |   |   |   |   |
| Current  liabilities                             |       |          |        |   |   |   |   |   |   |
| Trade  accounts payable                          |       | $             | 4,556,681   |   | $ | 1,611,145 |   | $ | — |   | $ | 6,167,826 |   |
| Interdivision  payables                          |       | 101,605       |        | 4,720,661 |   | (4,822,266 | ) | — |   |
| Accrued  expenses                                |       | 1,980,848     |        | 1,141,598 |   | — |   | 3,122,446 |   |
| Accrued  interest                                |       | 6,796,875     |        | — |   | — |   | 6,796,875 |   |
| Taxes  payable                                   |       | 51,950        |        | — |   | — |   | 51,950 |   |
| Total  current liabilities                       |       | 13,487,959    |        | 7,473,404 |   | (4,822,266 | ) | 16,139,097 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Deferred tax  liabilities                        |       | 1,759,509     |        | — |   | — |   | 1,759,509 |   |
| Long-term debt,  excluding current maturities    |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total  liabilities                               |       | 140,247,468   |        | 7,473,404 |   | (4,822,266 | ) | 142,898,606 |   |
| Stockholder’s  equity                       |       |          |        |   |   |   |   |   |   |
| Common stock                                     |       | —        |        | — |   | — |   | — |   |
| Additional  paid-in capital                      |       | 37,646,400    |        | 26,624,729 |   | (26,624,729 | ) | 37,646,400 |   |
| Retained  earnings                               |       | (22,923       | )           | 1,955,227 |   | (1,955,227 | ) | (22,923 | ) |
| Total  stockholder’s equity (deficit)       |       | 37,623,477    |        | 28,579,956 |   | (28,579,956 | ) | 37,623,477 |   |
| Total  liabilities and stockholder’s equity |       | $             | 177,870,945 |   | $ | 36,053,360 |   | $ | (33,402,222 | ) | $ | 180,522,083 |   |
|                                                  |            |               |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-23

----

 

Condensed consolidated balance sheet at December 31,2005:

 
| ** **                                       | ** ** | **Successor** | ** **  |
|--------------------------------------------------|------------|---------------|-------------|
| ** **                                       | ** ** | **Parent**    | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Assets**                                       |       |          |        |   |   |   |   |   |   |
| Current  assets                                  |       |          |        |   |   |   |   |   |   |
| Cash and  cash equivalents                       |       | $             | 509,176     |   | $ | 16,821,585 |   | $ | — |   | $ | 17,330,761 |   |
| 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       |       | 234,304       |        | 391,671 |   | — |   | 625,975 |   |
| Deferred  income taxes                           |       | 1,403,035     |        | — |   | — |   | 1,403,035 |   |
| Total  current assets                            |       | 22,866,426    |        | 43,634,454 |   | — |   | 66,500,880 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Investments  in subsidiary guarantors            |       | 38,298,917    |        | — |   | (38,298,917 | ) | — |   |
| 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                         |       | 4,884,798     |        | 169,937 |   | — |   | 5,054,735 |   |
| Total assets                                     |       | $             | 195,037,318 |   | $ | 52,432,775 |   | $ | (38,298,917 | ) | $ | 209,171,176 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| **Liabilities  and Stockholder’s Equity**   |       |          |        |   |   |   |   |   |   |
| Current  liabilities                             |       |          |        |   |   |   |   |   |   |
| Trade  accounts payable                          |       | $             | 9,743,912   |   | $ | 10,058,538 |   | $ | — |   | $ | 19,802,450 |   |
| 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                       |       | 21,254,495    |        | 14,133,858 |   | — |   | 35,388,353 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Deferred  income tax and other liabilities       |       | 4,456,475     |        | — |   | — |   | 4,456,475 |   |
| Long-term  debt, excluding current maturities    |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total  liabilities                               |       | 150,903,270   |        | 14,133,858 |   | — |   | 165,037,128 |   |
| Stockholder’s  equity                       |       |          |        |   |   |   |   |   |   |
| Common stock                                     |       | —        |        | — |   | — |   | — |   |
| Additional  paid-in capital                      |       | 37,732,680    |        | 26,624,729 |   | (26,624,729 | ) | 37,732,680 |   |
| Retained  earnings                               |       | 6,593,668     |        | 11,674,188 |   | (11,674,188 | ) | 6,593,668 |   |
| Total  stockholder’s equity (deficit)       |       | 44,326,348    |        | 38,298,917 |   | (38,298,917 | ) | 44,326,348 |   |
| Total  liabilities and stockholder’s equity |       | $             | 195,037,318 |   | $ | 52,432,775 |   | $ | (38,298,917 | ) | $ | 209,171,176 |   |

 

F-24

----

 

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

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

 

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

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

 

F-25

----

 

Condensed consolidated statement of operations forthe six-month period ended December 31, 2004:

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

 

Condensed consolidated statement of operations forthe year ended December 31, 2005:

 
| ** **                                    | ** ** | **Successor** | ** **  |
|-----------------------------------------------|------------|---------------|-------------|
| ** **                                    | ** ** | **Parent**    | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Net sales                                     |       | $             | 103,638,333 |   | $ | 203,924,739 |   | $ | (49,684,667 | ) | $ | 257,878,405 |   |
| Cost of  sales                                |       | 97,490,824    |        | 163,090,771 |   | (49,684,667 | ) | 210,896,928 |   |
| Gross profit                                  |       | 6,147,509     |        | 40,833,968 |   | — |   | 46,981,477 |   |
| Selling,  general and administrative expenses |       | 18,053,300    |        | 5,285,385 |   | — |   | 23,338,685 |   |
| Operating  profit                             |       | (11,905,791   | )           | 35,548,583 |   | — |   | 23,642,792 |   |
| Other income  (expense)                       |       |          |        |   |   |   |   |   |   |
| Interest  income                              |       | 36,156        |        | 173,720 |   | — |   | 209,876 |   |
| Interest  expense                             |       | (14,402,144   | )           | (94 | ) | — |   | (14,402,238 | ) |
| Executive/administration  income (expense)    |       | 26,153,051    |        | (26,153,051 | ) | — |   | — |   |
| Other  (expense) income, net                  |       | (350,830      | )           | 149,803 |   | — |   | (201,027 | ) |
| Equity in  earnings of subsidiary guarantors  |       | 9,718,961     |        | — |   | (9,718,961 | ) | — |   |
| Total other  income (expense)                 |       | 21,155,194    |        | (25,829,622 | ) | (9,718,961 | ) | (14,393,389 | ) |
| Income  before income taxes                   |       | 9,249,403     |        | 9,718,961 |   | (9,718,961 | ) | 9,249,403 |   |
| Income tax  expense                           |       | 2,632,812     |        | — |   | — |   | 2,632,812 |   |
| Net income                                    |       | $             | 6,616,591   |   | $ | 9,718,961 |   | $ | (9,718,961 | ) | $ | 6,616,591 |   |

 

F-26

----

 

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

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

 

F-27

----

 

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

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

 

F-28

----

 

Condensed consolidated statement of cash flows forthe six-month period ended December 31, 2004:

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

 

F-29

----

 

Condensed consolidated statement of cash flows forthe year ended December 31, 2005:

 
| ** **                                                                        | ** ** | **Successor** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                        | ** ** | **Parent**    | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                         |       |          |       |   |   |   |   |   |   |
| Net income                                                                        |       | $             | 6,616,591  |   | $ | 9,718,961 |   | $ | (9,718,961 | ) | $ | 6,616,591 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |          |       |   |   |   |   |   |   |
| Depreciation  of property and equipment                                           |       | 2,594,701     |       | 1,331,357 |   | — |   | 3,926,058 |   |
| Amortization  of intangibles                                                      |       | 3,871,250     |       | 823,333 |   | — |   | 4,694,583 |   |
| Amortization  of bond issuance cost                                               |       | 682,800       |       | — |   | — |   | 682,800 |   |
| Equity in  earnings of subsidiary guarantors                                      |       | (9,718,961    | )          | — |   | 9,718,961 |   | — |   |
| Loss on  disposal of assets                                                       |       | —        |       | — |   | — |   | — |   |
| Deferred tax  liability                                                           |       | 1,707,525     |       | — |   | — |   | 1,707,525 |   |
| Compensation  expense for stock options                                           |       | 86,280        |       | — |   | — |   | 86,280 |   |
| Changes in  assets and liabilities                                                |       |          |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                        |       | (478,420      | )          | (4,852,099 | ) | — |   | (5,330,519 | ) |
| Interdivisional  receivables/payables, net                                        |       | 936,358       |       | (936,358 | ) | — |   | — |   |
| Inventories                                                                       |       | (1,552,079    | )          | (2,270,101 | ) | — |   | (3,822,180 | ) |
| Prepaid  expenses and other current assets                                        |       | 12,012        |       | (106,881 | ) | — |   | (94,869 | ) |
| Other  noncurrent asset                                                           |       | (36,415       | )          | (25,181 | ) | — |   | (61,596 | ) |
| Trade  accounts payable and accrued expenses                                      |       | 7,462,833     |       | 11,381,115 |   | — |   | 18,843,948 |   |
| Accrued bond  cost and LOC interest                                               |       | (519,979      | )          | — |   | — |   | (519,979 | ) |
| Taxes  payable                                                                    |       | 925,287       |       | — |   | — |   | 925,287 |   |
| Net cash  provided by operating activities                                        |       | 12,589,783    |       | 15,064,146 |   | — |   | 27,653,929 |   |
|                                                                              |       |          |       |   |   |   |   |   |   |
| **Cash  flows from investing activities**                                         |       |          |       |   |   |   |   |   |   |
| Capital  expenditures                                                             |       | (13,166,081   | )          | (446,117 | ) | — |   | (13,612,198 | ) |
| Net cash  used in investing activities                                            |       | (13,166,081   | )          | (446,117 | ) | — |   | (13,612,198 | ) |
|                                                                              |       |          |       |   |   |   |   |   |   |
| **Cash  flows from financing activities**                                         |       |          |       |   |   |   |   |   |   |
| Proceeds  from issuance of common stock                                           |       | —        |       | — |   | — |   | — |   |
| Net cash  provided by financing activities                                        |       | —        |       | — |   | — |   | — |   |
| Net increase  in cash and cash equivalents                                        |       | (576,298      | )          | 14,618,029 |   | — |   | 14,041,731 |   |
|                                                                              |       |          |       |   |   |   |   |   |   |
| **Cash and  cash equivalents**                                                    |       |          |       |   |   |   |   |   |   |
| Beginning of  period                                                              |       | 1,085,474     |       | 2,203,556 |   | — |   | 3,289,030 |   |
| End of  period                                                                    |       | $             | 509,176    |   | $ | 16,821,585 |   | $ | — |   | $ | 17,330,761 |   |

 

**16.****                              ****Subsequent Event**

 

On February 6, 2006, we announced our intentionsto discontinue assembly operations at our McAllen, Texas facility and shift alloperations to our Cincinnati, Ohio facility. In connection with this initiativewe anticipate recording approximately $13.0 million of cost in 2006, of which                        million will be non-cash expenses.

 

F-30

----