** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-K**

 

**FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO**

**SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGEACT 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, 2004**

 

**OR**

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

 

**Commission file number: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. Employer Identification No.)

 

**10825 Kenwood RoadCincinnati, Ohio 42542(513) 794-9800**(Address of Principal Executive Offices and Telephone Number,Including Area Code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:

**None**

** **

Securitiesregistered pursuant to Section 12(g) of the Act:

**None**

 

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 the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.  Yes ý No o

 

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 an accelerated filer (as defined in Exchange Act Rule12b-2).  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 March31, 2005, one share of Registrant’s Common Stock, par value $0.01, wasoutstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE:**

 

**None.**

 

 

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THE WORNICK COMPANYTABLE OF CONTENTS

 
| PART I.                           |   |                                                                                                                   |   |
|-----------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|
| Item  1:                          |   | Business                                                                                                               |   |
| 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 and Related Stockholder Matters and Issuer  Purchases of Equity Securities |   |
| Item  6:                          |   | Selected  Financial Data                                                                                               |   |
| Item  7:                          |   | Management’s  Discussion 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 Statement Schedules, and Reports on Form 8-K                                                      |   |
| Signatures                        |   |
| Exhibit Index                     |   |
| Consolidated Financial Statements |   |

 

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**CautionaryStatements Regarding Forward-Looking Statements**

 

This report includes “forward-looking statements” within the meaning ofthe Private Securities Litigation Reform Act of 1995, including statementsabout our business, operations, financial results and future prospects.  Forward-looking statements are those that do notrelate solely to historical fact.  Theyinclude, but are not limited to, any statement that may predict, forecast,indicate or imply future results, performance, achievements or events.  They may contain words such as “believe,” “anticipate,”“expect,” “estimate,” “intend,” “project,” “plan,” “will,” or words or phrasesof similar meaning.  They may relate to,among other things:

 

•                  ourliquidity and capital resources;

 

•                  ourcontracts with the U.S. Government;

 

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

 

•                  ourco-manufacturing plans;

 

•                  competitivepressures and trends in our industry;

 

•                  prevailinginterest rates;

 

•                  legalproceedings and regulatory matters;

 

•                  otherrisks related to the notes (including the value of the collateral);

 

•                  statementswith respect to the transactions related to the acquisition of our business onJune 30, 2004, or the “Transactions;”

 

•                  generaleconomic conditions; and

 

•                  ourdevelopment and expansion plans and expectations for the future.

 

These forward-looking statements reflect our current views with respectto future events and are based on assumptions and subject to risks anduncertainties, including, but not limited to, economic, competitive andgovernmental factors outside of our control, that may cause actual results todiffer materially from trends, plans or expectations set forth in theforward-looking statements and may adversely affect us.  These risks and uncertainties include thosefactors discussed in “Management’s Discussion and Analysis of FinancialConditions and Results of Operations—Risk Factors.”

 

It is not possible for us to predict all risks and uncertainties, norcan we assess the extent to which any factor, or combination of factors, maycause actual results to differ from those contained in forward-lookingstatements.  Given these risks anduncertainties, we urge you to read this report and any subsequently filedreports with the understanding that actual future results may be materially differentfrom what we plan or expect.

 

We are not under any duty to update any of these forward-lookingstatements after the date of this report to conform such statements to actualresults or to changes in our expectations. All forward-looking Statements contained in this report and any subsequentlyfiled reports are expressly qualified in their entirety by these cautionarystatements.

 

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**PARTI**.

 

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

 

## **Item 1**:                    Business

##  

**Overview**

 

On June 30, 2004, as described in more detail below under the caption “—AcquisitionTransactions,” we acquired our business from a predecessor company.  Our predecessor company began operations in1971, and was the first contractor to complete delivery of Meals Ready-to-Eat,or “MREs,” to the DoD in 1981.  In eachsubsequent year, the Department of Defense, or the DoD, has awarded ourpredecessor company and, subsequent to the acquisition, us contracts to deliverMREs and other food products.  In 1995,Mr. Ronald C. Wornick, one of the founders of our business retired and sold ourpredecessor company to certain of its employees through an employee stockownership trust.  Since 1995, ourbusiness expanded into new military and commercial products.

 

We are the leading supplier of individual and group military fieldrations to the DoD.  We specialize in theproduction, packaging and distribution of extended shelf-life, shelf-stable andfrozen foods in flexible pouches and semi-rigid containers.  With over 30 years of experience in thefood manufacturing and food processing businesses, we believe we have areputation for superior quality and service in developing and producing uniquemeal solutions for the military and for the consumer and foodservicemarkets.  We are a primary supplier tothe DoD of MREs, Unitized Group Rations-A or “UGR-As,” and the Tray-Packs thatare used in the Unitized Group Rations—Heat & Serve, or “UGR-H&S,”program.  Our customers also include, butare not limited to, Kraft Foods Inc., or “Kraft,” Gerber Products Company,or “Gerber,” Quaker Oats Company, or “Quaker,” the Canadian Ministry ofDefense, retail stores including Walgreen Co., or “Walgreen” and7-Eleven, Inc., or “7-Eleven,” and grocery stores such as The Kroger Co.,or “Kroger,” Publix Super Markets, or “Publix,” and Meijer.  Given the elevated levels of deployment ofU.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 and commercializingthermostabilization technologies for processing and packaging foods usingflexible and semi-rigid packaging.  Ourpackaging technologies and stabilization processes prolong the shelf-life andenhance the quality of our products and have a broad range ofapplications.  The stabilizationprocesses we utilize include retort processing, hot-fill, in-linepasteurization, post-packaging pasteurization and frozen food technologies.  With our industry-leading technology andcapabilities, we have developed innovative approaches to the manufacturing ofentrées, side dishes and desserts, and we offer a turnkey food processingoperation that allows us to manage a concept from product development tofull-scale manufacturing through ultimate distribution.

 

**AcquisitionTransactions**

 

On December 3, 2003, The Wornick Company, a Delaware corporation, anacquisition vehicle formed by The Veritas Capital Fund II, L.P., and itsgeneral partner, Veritas Capital Management II, L.L.C. (Veritas CapitalManagement), entered into an Assets Purchase and Sale Contract with The WornickCompany, a Nevada corporation, or the “predecessor company,” 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 and Sale Contract, asamended, provided for the purchase by us and the sale by the predecessorcompany, of the business of the predecessor company and its subsidiaries as agoing concern, including substantially all of their operating assets, and theassumption of certain of the liabilities of the predecessor company and itssubsidiaries, or the “acquisition.”  Thegross purchase price of the business, subject to a post-closing purchase priceadjustment, was $155 million, of which $150 million was paid to the sellers atthe closing and the remaining $5 million was paid to an escrow agent as escrowfor the sellers’ obligations under the Assets Purchase and Sale Contract.  The acquisition closed on June 30, 2004.

 

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In October 2004, approximately $99,000 was paid by the sellers to us asa purchase price adjustment.  To date, wehave not submitted any request for payment against the escrowed funds.  If norequests for payment against the escrow are made by September 30, 2005, theescrowed funds will be released to the sellers.

 

We funded the purchase price of the acquisition and the related feesand expenses with the proceeds of an offering of our 107/8%Senior Secured Notes due 2011, or the original notes, and the contribution ofequity investments in TWC Holding LLC, our direct parent, as follows:

 

•                  thepurchase by the equity investors of Class A interests in TWC Holding LLC for$37.5 million in cash;

 

•                  thecontribution by TWC Holding LLC of all cash received by it from the equityinvestors; and

 

•                  grossproceeds of $125 million from the issuance and sale of the original notes.

 

We entered into a senior secured revolving credit facility, or thecredit facility, of up to $25 million concurrently with the closing of theacquisition and the notes offering.  Wehave the option to pay only interest on amounts borrowed under the facility atan annual adjustable interest rate calculated in accordance with the applicablepromissory note.

 

The closing of the offering of the original notes, or “notes offering,”occurred simultaneously with the closing of the acquisition, our new creditfacility and the other financing transactions described above.

 

We refer to the acquisition, the notes offering, our entering into thenew credit facility and the other financing transactions described abovecollectively as the “acquisition transactions.”

 

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

 

On February 11, 2005, our direct parent, TWC Holding LLC, and itswholly-owned finance subsidiary, TWC Holding Corp., co-issued their 13.875%Senior PIK Notes due 2011, or the “Senior PIK Notes,” in the aggregateprincipal amount of $26,000,000.  TheSenior PIK Notes earn interest at the rate of 13.875% per annum, mature onAugust 15, 2011 and are unsecured obligations of TWC Holding LLC and TWCHolding Corp.  As result, the Senior PIKNotes are structurally subordinated to all of our existing and futureindebtedness and other obligations, including, without limitation, ourobligations under the notes and the rights of holders of the TWC Notes areeffectively junior to the rights of holders of any of our indebtedness.  Therefore, if Senior PIK Holding LLC orSenior PIK Holding Corp. defaults under the terms of the Senior PIK Notes, ourassets will not be available to satisfy the obligations of Senior PIK HoldingLLC or TWC Holding Corp., except under limited circumstances.

 

**SegmentInformation**

 

We have two reportable segments, the Right Away Division, or “RAD,” andthe Prepared Foods Division, or “PFD.” The RAD division is our core military supply business and the PFDdivision includes our core consumer and commercial business.  In addition, the PFD division supplies theRAD division with intermediate items used to assemble products distributed bythe RAD division as well as directly supplying military customers with certainitems.  For a fuller discussion of theoperating results of these segments, please see Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Results of Operations—Operating Segment Results.”

 

**IndustryOutlook**

 

*Military.*  The U.S. defense environment has changeddramatically since 2001 with the extensive deployment of U.S. armed forces toAfghanistan and Iraq.  In bothsituations, the U.S. armed forces require ration support systems in intense andhighly mobile combat situations.  Withthe changes in the military’s mobilization

 

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techniques and the need for the highest level of food safety andsecurity, we believe that we are well situated to continue our leadershipposition in feeding the military in both times of peace and war.

 

We expect our core business of providing extended shelf-life productsto military customers to experience steady long-term growth.  The DoD is required to maintain a war reserveinventory of MREs at all times.  Inresponse to the DoD’s desire for a higher state of readiness, the federallymandated military war reserve of MREs is expected to increase from its currentlevel of 4.1 million cases to approximately 6 million cases in thenext few years.  A congressionalcommittee has directed the Secretary of Defense to provide for the funding of aportion of this increase in the war reserve level in the DoD’s 2005 budgetsubmission.  We are one of only threecompanies approved by the DoD to supply MREs, including for the warreserve.  Currently, the DoD assemblesthe UGR-H&S ration at government-owned depots, but the Defense SupplyCenter Philadelphia, or the DSCP, is evaluating the possible outsourcing of theassembly of UGR-H&S.  The DSCP, aspart of its “Total Systems Approach,” is also evaluating the outsourcing of theremaining government furnished components of the MRE program for procurement bythe assembly contractors.

 

*Consumer. *According to the Mintel Shelf Stable MealsMarket U.S. Report, published in April 2004, the overall market for consumerretail shelf-stable meals was $2.378 billion in 2003 and is expected toincrease by 9% from 2003 to 2008, with the $237 million market for shelf-stablemicrowaveable entrées in 2003 growing by 11% during the same period.  This growth is driven by consumer demand forconvenience and increased acceptance of extended shelf-life foods.  Homestyle Express, our consumer brand, isbeing distributed through consumer retail channels such as Walgreen and7-Eleven, and grocery stores such as Kroger and Publix.  While consumer feedback on our HomestyleExpress brand has been favorable, lower than expected consumer acceptance hasresulted in lower than targeted sales of $5.2 million in 2004 and reducedprofitability of Homestyle Express.  Weare evaluating alternatives for our Homestyle Express brand.

 

*Commercial.*  In the foodservice industry,Technomic, Inc., a leading food and restaurant consulting group, in areport published in August 2002, estimated the market size in 2002 forfoodservice entrées at $2.3 billion, with entrées anticipated to grow by1% to 2% annually.  We believe there isan opportunity for us to increase our share of the commercial and institutionalshelf-stable foodservice market by supplanting frozen and canned products withour flexible-pouch shelf-stable entrées, side dishes and sauces.  In 2004, our foodservice initiatives werefocused on market tests that generated approximately $424,000 in net sales tocustomers such as Kroger supermarket delis and the U.S. Navy.  We are evaluating our current relationshipwith H.J.Heinz as our master distributor for commercial foodservice productsand are preparing a launch plan for distributing to prime military foodservicevendors.  We expect to finalize and begineffectuating our updated foodservice market expansion plans during 2005.

 

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**Products**

 

*Military Products*

* *

The following table outlines the products forour military segment:

 
| **Product  Category** | ** ** | ** **                                                   | ** ** | **Description  and Use** | ** ** | ** **                                                                                                                                                                                                                                 | ** ** | **What  We Do** | ** ** |
|-----------------------|------------|--------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| •                |       | Meal, Ready to Eat (MRE)                                     |       | •                   |       | Self-contained operational ration, including entrée, side dish, snack  components, accessory packet and flameless heater, for the individual soldier  in a combat environment                                                         |       | •          |       | Ration assembly and production of over 60 of the 85 MRE components,  including retort entrées and side dishes, extended shelf-life components and  hot-fill components |   |
|                  |       |                                                         |       |                     |       |                                                                                                                                                                                                                                       |       |            |       |   |   |
| •                |       | Unitized Group Rations — A (UGR-A)                      |       | •                   |       | Group-feeding meal modules for 50 soldiers when field kitchen  equipment is available, using frozen, canned or dried foods to prepare  entrées and side dishes, and includes disposable accessories such as cups,  utensils and trays |       | •          |       | Supply chain management, assembly and distribution |   |
|                  |       |                                                         |       |                     |       |                                                                                                                                                                                                                                       |       |            |       |   |   |
| •                |       | Unitized Group Rations — Heat & Serve (UGR-H&S) |       | •                   |       | Group-feeding meal modules for 50 soldiers, using ready-to-heat  shelf-stable Tray-Packs rather than frozen, canned or dried foods, and  includes disposable accessories such as cups, utensils and trays                                  |       | •          |       | Manufacture UGR-H&S semi-rigid flexible polymeric Tray-Packs |   |
|                  |       |                                                         |       |                     |       |                                                                                                                                                                                                                                       |       |            |       |   |   |
| •                |       | Humanitarian Daily Rations (HDR)                             |       | •                   |       | Extended shelf-life individual full-day ration and accessories for a  moderately malnourished individual                                                                                                                                   |       | •          |       | Packaging subassembly and final ration assembly, including retort  entrees and side dishes |   |
|                  |       |                                                         |       |                     |       |                                                                                                                                                                                                                                       |       |            |       |   |   |
| •                |       | Tailored Operational Training Meals (TOTM)                   |       | •                   |       | Low-cost alternative to MRE for use in training, primarily by the  National Guard                                                                                                                                                          |       | •          |       | Packaging subassembly and final ration assembly, including retort  entrees and side dishes |   |

 

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

* *

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 the supply of MREssince the inception of the DoD’s MRE program in 1978 and have delivered morethan 380 million individual MREs to the U.S. military.  Each MRE has a shelf-life of three years at80 degrees Fahrenheit and is packaged in a hermetically sealed MRE meal bagthat is resistant to insects, moisture, and nuclear, biological and chemicalagents.  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 17components, including a flameless heater to quickly warm the entrée.  The manufacturing of MRE entrées is highlycomplex and requires expertise in retort flexible pouch processing and strictadherence to DoD specifications.  We havereceived numerous awards for quality in the manufacturing of MRE entrées,including recognition from the DSCP for the highest quality level of any MREcontractor.

 

We also use modified atmosphere packagingtechniques to extend the shelf-life of the various snack and bakery componentsof the MRE.  We have received numerousquality awards from the DSCP for the assembly and packaging of MREs.  An MRE is capable of withstanding low-levelairdrop and storage in heavy humidity to wet conditions without degradation ofthe packaging.

 

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We currently provide MREs to the DoD pursuantto a contract 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. The DoD enters into Industrial Preparedness Agreements with contractorsto ensure that a high production and assembly capacity and a large amount ofspecial equipment is available at all times to accommodate a potential surge inmilitary requirements.  The typical MREcontract is a three-year fixed-price contract consisting of one base year andtwo option years, which the DSCP has always exercised.  Our current contract calls for a basedelivery of 875,000 cases (12 MREs per case), plus an add-on of up to 50% ofthe base MRE quantity, increasing the potential total volume to approximately1.3 million cases per year, not including any military surgequantities.  If the DSCP invokes itsrights under the contract to purchase surge quantities from us, we negotiateseparate surge pricing.  Our current MREcontract expires on December 31, 2005. We expect to bid for the next MRE contract during 2005, which will be a five-yearcontract with a one-year base period and four renewal periods of one-year each,with deliveries starting in 2006.  TheDSCP, as part of its “Total Systems Approach,” is also evaluating theoutsourcing of remaining government furnished components of the MRE program forprocurement by the assembly contractors.

 

The DSCP is obligated to maintain aninventory of MREs at all times known as the “war reserve.” This inventory isrotated on a continuous three-year cycle. In peacetime, MREs are predominantly used in military trainingexercises.  In response to the DoD’sdesire for a higher state of readiness, the federally mandated military warreserve of MREs is expected to increase from its current level of4.1 million cases to approximately 6 million cases in the next fewyears.       In addition to our sales tothe DoD, we have sold between 500,000 and 750,000 MRE entrées and side dishesto the Canadian military each year for the past six years pursuant to fully-hedgedCanadian dollar-denominated contracts with the Canadian government.

 

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

* *

The UGR-A provides A-Ration (freshlyprepared) meals in the field that are comparable to commercially available hotfoodservice meals.  The UGR-A is usedwhen field kitchen equipment becomes available and is configured into 50-personmeal modules for ease of ordering and distribution.  Each UGR-A module consists of three boxes,one with frozen food and the rest containing non-refrigerated commercial fooditems and side dishes, eating utensils, beverages and condiments.  The seven breakfast and 14 lunch/dinner menuscontain all necessary food items and disposable items (such as cups and trays),with the exception of perishable items such as bread and milk.  Under our UGR-A contract, UGR-As assembledfor consumption in the continental United States must have a minimum shelf lifeof three months, and modules assembled for consumption outside the UnitedStates must have a shelf life of nine months.

 

We are responsible for the ordering,packaging and logistics associated with assembling and delivering UGR-As to therequired military bases.  Substantiallyall of the UGR-A components are available from multiple commercial foodsuppliers.  We are currently workingunder an indefinite delivery, indefinite quantity contract awarded by the DSCPin July 2004.  The eight-yearcontract, which is in its two-year base period, calls for delivery of the mealmodules on an order-by-order basis. UGR-A contracts designate a set of military bases in the continentalUnited States to which the contractor will provide UGR-A modules during theterm of the contract.  Every week, we andother contractors submit updated component pricing to the DSCP for the nextone-week period to adjust for commercial component price fluctuations.  This component price information is used todetermine the price for all UGR-As ordered during the following one-weekperiod.  These weekly price submissionsare also evaluated to determine awards of UGR-A purchases for delivery outsidethe continental United States during the applicable one-week period.  We delivered approximately 280,000 modules in2004, and approximately 856,000 modules in 2003 and 316,000 modules in2002.  Since the inception of the UGR-Aprogram in 2000, we have been the leading supplier to the DSCP in terms oftotal 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 ourparticipation in the UGR-A program by directly supplying our own frozenbreakfast and dinner entrées for the program, in three-to-five pound Great FoodExpress pouches.  In early 2004, wereceived approval from the DoD to supply a Great Food Express entrée for theUGR-A program and began shipping the entrée in late 2004.  We have recently received approval from theDoD to supply a second entrée developed by our research and developmentfacility for the next program year, which will commence in October 2005.

 

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We have other food items that are in various stages of development andevaluation by the DoD. We were one of four contractors awarded an eight-yearcontract for UGR-A and received the highest market share of the awardedcontractors according to the estimated annual quantities provided by the DSCPfor continental United States or “CONUS,” UGR-A sales.  The contract includes specific CONUS militarybase destinations that we will serve exclusively for the eight-yearperiod.  In addition, we will be eligibleto bid for the DSCP’s UGR-A requirements outside of the continental UnitedStates during the eight-year contract.

 

*Tray-Pack*

 

*Wemanufacture the Tray-Pack, a shelf-stable ration packaged in a semi-rigidflexible tray as an extended shelf-life component and the primary outsourcedproduct of the UGR-H&S program.  TheUGR-H&S is a transitional field ration that is similar to the UGR-Adiscussed above but uses shelf-stable ready-to-heat Tray-Packs rather thanfrozen, canned or dried foods.  It is atransitional field ration that can be used in the early stages of militaryactivity because it does not require the extensive support infrastructure ofrefrigeration or full kitchens. Tray-Packs can be heated in steam tables and served directly from thetray.  Each container provides betweennine and 18 servings.  The entrée andside servings are ready-to-heat, reducing food preparation time and water andfuel usage.  As with our entrée packs forMREs, we utilize our expertise in food processing and retort packaging tomanufacture durable low-cost Tray-Packs. We supply the DSCP with this product under a five-year fixed-pricecontract, which expires in 2005.  Sincethe U.S. Government began using polymeric trays in military ration programs, wehave been the number one supplier of these trays to the DSCP in terms of totalvolume and quality performance, as reported by the DSCP and the U.S. Departmentof Agriculture, or the “USDA,” respectively.*

 

Currently, the DoD assembles the UGR-H&Sration at government-owned depots, but the DSCP is evaluating the possibleoutsourcing of the assembly of UGR-H&S. Based on our experience as the leading supplier of UGR-As, the assemblyof which is nearly identical to the UGR-H&S, we believe we are stronglypositioned to be a leading provider of UGR-H&S assembly services.  We also plan to be in the forefront of thedevelopment of entrées, side dishes and sauce components for the Army’s newUnitized Group Rations – Express (UGR-E) program, which uses self-heatingTray-Pack modules to provide hot meals in remote locations, as well as othernew Army feeding systems.

 

*Humanitarian Daily Rations (HDR)*

* *

The HDR is similar to the MRE in its packaging, but its contents aredesigned to provide a full days’ sustenance to a moderately malnourishedindividual rather than feed an active soldier. The HDR is composed of ready-to-eat thermostabilized entrées andcomplementary components.  In order togain 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 meal bag contains user-friendly graphicsdescribing its contents and instructions for opening the bag in three differentlanguages.  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 theMRE contract awarded to us in March 2003, we are required to deliver aminimum of 100,000 and a maximum of 2.5 million HDR day-packs per year, asmay be ordered by the DSCP, throughout the three-year life of the MREcontract.  HDR day-packs are stockpiledworldwide to prepare for emergency situations. HDR inventory is managed by the Defense Security Cooperation Agency(DSCA) and HDR day-packs are provided in emergency and other humanitariansituations at its discretion.  DSCAemploys the DSCP solely as a purchasing authority for assembled HDRday-packs.  The DSCA’s inventory of HDRday-packs was substantial as of December 31, 2004 as HDR day-packs were notused in humanitarian relief efforts during the most recent Tsunami disaster,except on a limited basis.

 

*Tailored Operational Training Meal (TOTM)*

 

The TOTM ration provides an alternative operational training meal inlieu of sack lunches and catered commercial meals to soldiers engaged ininactive duty training for use in situations where traditional operationalration meals are not mandated.  Thisration employs many of the same components as the MRE.  Menus typically

 

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contain an MRE entrée, wet-pack fruit, a beverage base, flamelessheater, dining kit and other assorted components.  Since they were introduced in 2002, TOTMrations have been used mainly for training by the National Guard.  This meal, a low-cost alternative to MREs,helps individuals become familiar with the preparation, use, consumption anddisposal of pre-packed meals similar to MREs. The TOTM is lightweight and fits easily into military field clothingpockets.  It also may easily be adaptedfor disaster relief efforts.

 

As with our MRE and HDR rations, wemanufacture entrée packs and provide product assembly services for TOTMs. Under a Blanket Purchase Agreement issued by the DSCP in April 2002, weprovide TOTMs as ordered by individual National Guard supply centers,through the DSCP.

 

*Co-Manufactured Products*

 

Through our co-manufacturing program, whichbegan in 1998, we manufacture a variety of extended shelf-life products forleading branded food companies, including Kraft and Gerber.  These products are marketed and sold by ourcustomers into their retail and foodservice channels under nationallyrecognized brands.  We target brandedcompanies that are leaders in their respective categories and have productsthat align well with our core competencies in heat seal and thermostabilizedproducts.  Many of these products requireus to use a combination of our existing manufacturing equipment as well asnewly purchased equipment, the cost of which is largely borne by our contractedco-manufacturing customers.  Ourco-manufacturing program utilizes many of the technologies and processes thatwe have developed for our military business.

 

The majority of our co-manufacturing supplycontracts include a capital component through which the customer funds asignificant portion of the capital required to support production of therelated product.  Under thesearrangements, we provide the initial financing for capital expenditures.  We own all of the equipment acquired undersuch agreements, which are structured to minimize our obligation to makecapital expenditures if a project is discontinued unexpectedly by requiring thecustomer to pay the entire balance of the capital expenditure portion remainingdue under the supply contracts.  If we donot 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-manufacturing contracts are generallymutually exclusive, in that we are restricted from making the co-manufacturedproduct for other customers, and likewise our customer may not buy suchproducts from other suppliers.

 

*Kraft Macaroni & Cheese*

* *

Kraft, the largest seller of shelf-stablemeals in the United States, is our longest-standing co-manufacturing customer.  Since 1998, we have worked in partnershipwith Kraft to produce single-serve frozen Kraft Macaroni & Cheese in7-ounce and 10-ounce packages, which are frozen in-line and shipped directlyinto Kraft’s frozen foods distribution network. We were awarded this business on the basis of our proprietary blendingprocess.  We were identified by Kraft asthe only supplier able to match the quality 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 new contract effectiveSeptember 2003, we are the exclusive manufacturer of single-serve frozenKraft Macaroni & Cheese through 2006. Following 2006, the contract will renew automatically in one-yearincrements unless terminated within 180 days of the expiration date.  Our deliveries of single-serve frozen KraftMacaroni & Cheese have grown by more than 20% per year since theoriginal contract began in 1998.  In2004, we installed a high-speed production line which effectively doubles ourprior capacity for this product.  Weexpect that this new production line will contribute to continued growth andallow us to expand our production at a faster rate.

 

*Kraft Boca Italian Entrées*

* *

In March 2003, we began manufacturing aline of frozen Italian entrées for Kraft’s Oscar Mayer division.  Boca Italian entrées are an expansion ofOscar Mayer’s established Boca line of meat-substitute products.  We manufacture two single-serve entrées,Italian Lasagna and Cheese Ravioli, which are covered with a speciallyformulated sauce containing Boca crumbles. The product is packaged in an oven-ready tray that is heat sealed andshipped frozen to Kraft’s warehouses for distribution to retail outlets.

 

7

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In July 2004, Kraft elected to discontinuefurther production of the Cheese Ravioli line beyond 2004.  In the same month, Kraft launched its BocaItalian Lasagna line nationally.  Theproject is in the second year of a three-year contract with Kraft that issubject to annual renewal thereafter.

 

*Gerber Lil’ Entrées*

* *

In 2001, we developed and began manufacturingnine varieties of Lil’ Entrées pursuant to an exclusive North American supplyagreement for Gerber, an international branded baby food company.  This shelf-stable product line is anextension of Gerber’s industry-leading baby food line, packaged in a plastictray and targeted for babies between eight months and 14 months.  We have entered into an agreement with Gerberto construct a new high-speed production line that will triple our currentcapacity to produce Lil’ Entrées in 2005. The base term of our initial contract with Gerber for the production ofLil’ Entrées expired in November 2004, and was extended by mutualagreement until the commencement of production on the new line.  Upon the commencement of production on thenew line, our agreement with Gerber will extend through 2010.  The contract will automatically renew foradditional two-year increments following that time unless otherwise terminated.

 

*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 products are extensions of one ofQuaker’s category-leading brands and are expected to be launched nationally in2005.

 

*New Business Opportunities*

 

We continually seek opportunities to use ourtechnologies and experience to partner with established branded food companiesin new co-manufacturing arrangements.  Wecontinue to be engaged in several large projects that are in various stages ofdevelopment and consumer testing.  All ofthese projects are with category-leading companies, including some of the world’slargest food brands.    We believe thatwe are well-positioned to secure contracts in connection with these and futureopportunities.

 

*Branded Consumer Products*

* *

We develop, produce, and market HomestyleExpress, an award-winning brand of shelf-stable, single-serve bowl mealspositioned to offer good tasting, convenient food for busy adultconsumers.  Homestyle Express isconsistently recognized for its superior taste and has received Gold MedalTaste Awards for Excellence from the American Tasting Institute for fourconsecutive years beginning in 2001.  Ithas also received the Best New Product Award from the Convenience Store Newsand several “innovation in packaging” awards.

 

The Homestyle Express product line currentlyconsists of five entrées packed in shelf-stable microwaveable 10.5-ounce bowlsthat require no refrigeration and heat in 90 seconds and three Asian StyleSelections that are packed in 18-ounce stand-up pouches which are ready to heatand serve in two minutes.  We offerHomestyle Express products for sale through various channels, including massmerchandise outlets, grocery stores, drug stores, convenience stores andwarehouse clubs.

 

Our Homestyle Express products were initiallysold in stores operated by Wal-Mart Stores, Inc., or “Wal-Mart.”  However, due to slow sales, we have mutuallyagreed to stop shipments of Homestyle Express products to Wal-Mart.  While our Homestyle Express brand has beenbetter received by the consumer grocery trade, we have not achieved our salesand profitability targets for this brand. We are evaluating alternatives for our Homestyle Express brand.

 

*Branded Foodservice Business*

* *

In 2004, we began test marketing ourservices for customized foodservice entrée, side dish and sauce applicationsunder the Great Food Express brand.  Thisbrand is targeted at large foodservice chain restaurants that

 

8

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seek products customized to theirspecifications in ready-to-heat three-to-five pound shelf-stable pouches.  Our shelf-stable products are designed forhigh-volume chain restaurants and institutional users that may havefrozen/refrigerated storage constraints, food preparation labor issues, highturnover or solid waste disposal problems.

 

We began shipping our Great FoodExpress commercial foodservice brand in the first quarter of 2004 tocustomers such as Kroger supermarket delis and the U.S. Navy.  Inaddition, we plan to expand the scope of our participation in the UGR-A programby directly supplying our own frozen dinner entrées for the program inthree-to-five pound Great Food Express pouches. We have been approved for 2 of 14 total dinner menus and are seeking togain approval for one additional dinner menu in 2005.  Finally, we are planning to develop afoodservice direct sales channel to prime military foodservice vendors via the launch of our A la Smart brand inJuly 2005.

 

**Manufacturingand Processing**

 

We process and package foods using the latestflexible packaging and stabilization technologies.  We use a wide range of flexible packaging inthe manufacturing process, including pre-formed pillow and gusseted pouches,vertical and horizontal form fill pouches, and single serve and bulk sizesemi-rigid plastic containers.  All ofthese packages use heat seal technology to produce a hermetically sealedcontainer.

 

Our stabilization processes are enhanced byour ability 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 hermetically sealedcontainer, is heated to above 250 degrees Fahrenheit in order to renderthe food product shelf-stable.

 

•                  *Hot-fill—*the food product,typically a sauce or beverage, is dispensed into a package while the product isstill hot prior to sealing and cooling of package in order to render the foodshelf-stable.

* *

*•**      In-linepasteurization—*the food product, typically a product that is sensitive to hightemperatures, is heated before the product is packaged and sealed in order toextend the life of the product but not render it shelf-stable.

* *

*•**      Post-packagingpasteurization—*the food product, typically a product that is sensitive to hightemperatures, is heated after the product is packaged and sealed in order toextend the life of the product but not render it shelf-stable.

* *

*•**      Frozenstabilization—*the temperature of the food product is rapidly lowered below 32 degreesFahrenheit in order to preserve theproduct for extended periods of time.

 

These methods,along with our modified atmosphere packing technology, prolong shelf-life andmaintain product quality.  Using portioncontrol technology, we package individual serving size packages in flexible andsemi-rigid formats for retorted, frozen or pasteurized products ranging in sizefrom three ounces to five pounds.

 

Our manufacturing plants utilize acomprehensive quality systems approach that incorporates the benefits ofInternational Standards Organization systems, total quality management andstatistical process control systems.  Wepurchase modular and versatile equipment for use in our manufacturingfacilities, which we then customize in-house to our specifications to meet therequirements of each product line.  Thishas permitted us to increase the flexibility of our manufacturing lines andenhance our 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 hasreduced our labor and manufacturing costs, removed manufacturing inefficienciesand 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.

 

9

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In addition to our manufacturingcapabilities, we offer an extensive range of services in custom contractassembly, product design 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 thequality leader among our competitors in the production of MREs, UGR-As andTray-Packs and have received the number one rating in customer quality auditsand manufacturing quality from the DSCP. The DSCP audits its suppliers annually, and on-site U.S. militaryinspectors and the USDA monitor our quality performance.

 

Our contracts with the DSCP require us tomaintain a maximum supply capacity for each of our DoD supply programs, includinga maximum of 834,000 cases per month under our MRE contract, 750,000 modulesper month under our UGR-A contract and approximately 117,000 to 217,000 unitsper month under our Tray-Pack contract. We generally operate below these levels on a monthly basis.  Therefore, our facilities usually havesignificant excess manufacturing capacity, which provides us with substantialflexibility in planning future initiatives in our commercial and militarybusinesses.

 

**Sales,Marketing and Distribution**

 

*Military*

* *

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

 

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.  Weship products for which we provide manufacturing, such as Tray-Packs, to U.S.Government depots for final assembly and distribution.

 

*Co-Manufacturing*

* *

Historically, we acquired newco-manufacturing business by responding to potential customers’ requests forproposals.  In the future, we plan toactively pursue new co-manufacturing business through the execution of multipleprojects for strategic accounts that are leaders in their respective foodcategories.  We plan to aggressivelymarket our supply chain services and value-added product solutions whileleveraging our extensive existing contacts and support infrastructure.

 

In our co-manufacturing program, our VicePresident, Co-Manufacturing and Supply Chain is responsible for coordinatingthe deployment of internal resources, including research and development,engineering, supply chain management and manufacturing, to execute acomprehensive, turnkey commercialization plan to develop, test, and ultimatelymanufacture new products.  After aproduct is launched, the account is assigned to a customer servicerepresentative, who is responsible 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 in the industry and our record of meetingour commitments to our customers have led customers to seek out ourservices.  In the future, we intend topursue a more aggressive sales strategy in which we will seek out specificbranded partners and initiatives that align with our core competencies in heatsealed flexible packages and thermostabilized products.  We will continue to pursue relationships withlarge branded businesses that are leaders in their respective categories and weintend to add at least two more major industry players as customers of ourco-manufacturing business over the next three years.  Generally, we have favored deeper, more value-addedrelationships with a smaller number of customers, rather than lesscomprehensive relationships with many customers.  This approach has allowed us to build on ourstrengths by

 

10

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participating extensively in the early stage development of productsand their commercialization.  Wegenerally ship co-manufactured products to our customers’ warehouses forfurther distribution to consumer outlets.

 

*Branded Consumer Products*

* *

Our retail branded line of business ismanaged by our Vice President, Sales & Marketing, who oversees anddirects the development and growth of brand strategies.  We employ a dedicated staff for the sales andmarketing of Homestyle Express in addition to a nationwide broker salesnetwork.

 

We have not achieved our anticipated salesand profitability goals for our Homestyle Express brand, which had $4.6 millionin 2004 net sales, on a pro forma basis. We are reviewing alternatives for ourHomestyle Express brand.

 

*Branded Foodservice Business*

* *

Our branded foodservice businessis managed by our vice president of sales and marketing.  We handle our Great Food Express military salesdirectly.  We plan to introduce GreatFood Express into military prime vendor feeding programs through our strongexisting military business relationships.

 

**Suppliers**

 

We purchase our food and packaging supplieson an as-needed basis from commercial suppliers, with the exception of alimited number of components that are supplied to us by the U.S. Government forour MRE contract.  The DSCP has indicatedthat it is evaluating the outsourcing of all components of the MREprogram.  We do not rely on any singlecommercial supplier for a significant component of our business.

 

**ProductDevelopment**

 

In 2003, we constructed a modern productdevelopment facility to support our ongoing efforts to refine and improve thequality of our existing products.  Wemaintain an eight-person research and product development team with culinaryexpertise, in-house process authority and food science knowledge.  This team supports our commercial andmilitary product development and collaborates with our co-manufacturingcustomers.  For the military products,the team develops a wide range of products from breakfast to dessert, that meetstringent government nutritional requirements. In addition, we have worked with the U.S. Government on creatingpackaging materials for field rations, such as our development and productionof the Tray-Pack for the UGR-H&S program. This team also provides expertise on package selection to ensure thatthe packaging can withstand airdrop, rough handling and temperatureextremes.  In addition, this team workswith our engineering staff and operations personnel to develop the product,package and process for each product concept.

 

Our product development initiatives arisefrom a number of sources.  We react toour customers’ needs by focusing a portion of our product development resourceson product ideas that satisfy their requirements.  In other cases, our product developmentinitiatives are responses to our internal desire to reduce costs or improveproduct quality on existing product lines. Project-specific co-manufacturing initiatives are designed with feestructures that allow us to cover our expenses related to productdevelopment.  In addition, we monitormarket trends to identify potential opportunities to extend our own brandsthrough additional product development activities.

 

**Customers**

 

Our sales are predominantly derived fromthree contracts with the DSCP, which is responsible for the procurement ofmilitary field rations for the DoD. Approximately 83% of our net sales for the six months endedDecember 31, 2004 were made directly or indirectly to the U.S. Government.

 

Our primary co-manufacturing customers areKraft, Gerber and, most recently, Quaker, which collectively accounted forapproximately 12% of our net sales for the year ended December 31,2004.  In our

 

11

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branded products business, our customers include Walgreen, 7-Eleven,Kroger, Publix and U.S. military commissaries.

 

**Competition**

 

The MRE rations supply market is limited tous and two competitors: Ameriqual Foods, Inc. and SOPAKCO, Inc.  Both of our competitors in this marketmanufacture extended shelf-life foods similar to ours.  Their products include MREs, TOTMs andHDRs as well as several commercial products. In the UGR-A market, we compete with Ameriqual Foods, Inc., LabattFoods, a regional foodservice distributor, and The Advocacy and ResourceCenter.  In the Tray-Pack market, oursole competitor has been Stegner Foods, or “Stegner,” a small specialty foodproducts manufacturer based in Bridgetown, Ohio.  In January 2005, Stegner ceased operationsindefinitely.  We are the only companywith prime vendor contracts in each of the MRE, UGR-A and UGR-H&Sprograms.  Our contracts under theseprograms are subject to the risks related to government contracts.  For a discussion of these risks, please seethe related risk factors under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Risk Factors—Risks Related to OurBusiness.”

 

In the commercial extended shelf-life foodsmarket, our main competitors include Truitt Bros., Inc. and AmeriqualFoods, Inc.

 

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

 

**RegulatoryMatters and Government Contracts**

 

For the six months ended December 31,2004, 83% of our net sales were derived from contracts with the U.S. Governmentor 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 oflegal expenses and certain marketing expenses related to the preparation ofbids and proposals, are not allowed for pricing purposes.  The U.S. Government also regulates themethods under which costs are allocated to U.S. Government contracts.

 

The U.S. Government has significantunilateral rights under our contracts, including the ability to suspend us fromreceiving new contracts pending resolution of alleged violations of procurementlaws or regulations, terminate existing contracts, reduce the value of existingcontracts through partial termination and audit our contract-related costs andfees, including allocated indirect costs. Our U.S. Government contracts can be terminated by the U.S. Governmenteither for its convenience or if we default under the contract.  Termination for convenience provisions provideonly for our recovery of costs incurred or committed, settlement expenses andprofit on the work completed prior to termination.  Under termination for default provisions, weare liable for excess costs incurred by the U.S. Government in procuring undelivereditems from another source.

 

**IntellectualProperty**

 

We have registered the names HomestyleExpress®, Great Food ExpressÔand Asian Style SelectionsÔ and certain othernames used by our products as trademarks or service marks with the U.S. Patentand Trademark Office.  We are not awareof any existing infringing uses that could materially affect our business.

 

We believe that our trademarks and servicemarks are valuable to the operation of our business and are important to ourmarketing strategy.  Accordingly, weanticipate renewing and otherwise maintaining our trademarks and service marksas may be required.  Trademarks andservice marks are generally valid as long as they are in use and theirregistrations are properly maintained. Registrations of trademarks and service marks can generally be renewedindefinitely as long as the marks are in use.

 

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**Employees**

 

We employ individuals with a high level offood industry experience and production expertise to ensure product quality andoperational efficiency.  As of December31, 2004, we had approximately 771 full-time employees.  Approximately 85% of our employees are engagedin production, 1% of our employees are engaged in research and development and14% of our employees are engaged in sales, marketing, product support andgeneral administration.  We rely on asubstantial number of temporary employees on a continuing basis at our McAllen,Texas facilities, and during surge production periods at our Cincinnati, Ohiofacilities.  None of our workforce isunionized.  We believe that we generallyhave good relations with our employees.

 

**EnvironmentalMatters**

 

Our operations include (and those of pastoperators at our sites have included) the use, generation and disposal ofhazardous materials.  We are subject tovarious U.S. federal, state and foreign laws and regulations relating to theprotection of the environment, including those governing the discharge of pollutantsinto the air and water, the management and disposal of hazardous substances andwastes, the cleanup of contaminated sites and the maintenance of a safeworkplace.  We could incur substantialcosts, including cleanup costs, civil or criminal fines or sanctions and third-partyclaims for property damage or personal injury, as a result of violations of orliabilities under environmental laws and regulations or the non-compliance withthe environmental permits required at our facilities.

 

These laws, regulations and permits alsocould require the installation of costly pollution control equipment oroperational changes to limit pollution emissions or decrease the likelihood ofaccidental releases of hazardous substances. In addition, new laws and regulations, stricter enforcement of existinglaws and regulations, the discovery of previously unknown contamination at ouror other sites or the imposition of new cleanup requirements could require usto incur future costs that would have a negative effect on our results ofoperations or cash flow.

 

We believe that we have been and are insubstantial compliance with environmental laws and regulations and that we haveno liabilities 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 dowe expect to incur, material costs relating to environmental compliance.

 

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## **Item 2**:                    Properties

 

We lease all of the real property that we usein conducting our business.  Thefollowing table presents certain information on our operating properties as ofDecember 31, 2004:

 
| **Location**                                      | ** ** | **Sq.  Feet** | ** ** | **Use**                                                                                                | ** ** | **Lease  Expiration** | ** ** |
|---------------------------------------------------|------------|---------------|------------|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| 10825 Kenwood Road  Cincinnati, Ohio              |       | 182,000       |       | Headquarters; food manufacturing; office space                                                         |       | December 31, 2010     |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 5700 S. International Parkway  McAllen, Texas     |       | 171,200       |       | UGR-A raw materials storage and assembly                                                               |       | February 28, 2008     |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 4700-4750 Creek Road  Cincinnati, Ohio            |       | 156,200       |       | Headquarters, Prepared Foods Division, finance and sales offices;  warehouse and refrigerated assembly |       | July 31, 2008         |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 200 N. 1stMcAllen, Texas                          |       | 143,352       |       | MRE assembly, sub-assembly and storage; Right Away Division  headquarters                              |       | December 31, 2010     |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 5000 George McVay Drive  McAllen, Texas           |       | 61,200        |       | MRE raw materials storage and receiving                                                                |       | February 28, 2006     |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| Kenwood Road  Blue Ash, Ohio                      |       | 49,000        |       | Parking lot                                                                                            |       | December 17, 2004     |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 310 East Beech  McAllen, Texas                    |       | 16,800        |       | UGR-A frozen raw materials storage and assembly                                                        |       | April 30, 2005        |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 1512 “C” Mid-Cities Drive  Pharr, Texas |       | 5,700         |       | Equipment storage                                                                                      |       | Month-to-month        |       |
|                                              |       |          |       |                                                                                                   |       |                  |       |
| 307 E. Earling  Pharr, Texas                      |       | 4,600         |       | Document storage center                                                                                |       | December 31, 2010     |       |

 

Management considers our leased properties tobe adequate for our needs and believes that all of our leased properties arewell maintained and in good condition. In addition to these properties, we have rented space from time to timeat various third party storage facilities on a short-term and as neededbasis.  Management also believes thatthere are adequate facilities available for lease or rent in the event thateither the productive capacities of our manufacturing facilities need to beexpanded or a current lease of a facility expires.

 

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 actionsarising in the normal course of business, the outcomes of which, in the opinionof management, neither individually nor in the aggregate are likely to resultin a material adverse effect on our business, results of operations, financialposition or cash flows.

 

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

##  

There were no matters submitted to a vote ofsecurity holders during the fourth quarter of fiscal year 2004.

 

**PARTII.**

 

## **Item 5**:          Market ForRegistrant’s Common Equity and Related Stockholder Matters and Issuer Purchasesof Equity Securities

##  

All of our common stock is held by TWCHolding LLC, our direct parent, so there is no trading market for our commonstock.  For more information about theownership of TWC Holding LLC, see Item 12, “Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters.”

 

We have not paid any dividend on our commonstock to date.  Our working capitalfacility and the notes contain restrictions on our ability to pay dividends onour common stock.  See Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources—Long Term Debt Expenditures,” andNote 7 to our financial statements.  Thepayment of dividends on our common stock is also subject to the requirements ofDelaware law.  We have not paid anydividends on our common stock since our inception in November 2003.

 

## **Item 6**:                    SelectedFinancial 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 four fiscal yearsended December 31, 2000, 2001, 2002 and 2003 and the six months ended June 30,2004.  The selected consolidatedfinancial data as of December 31, 2002 and 2003, and for the years endedDecember 31, 2001, 2002 and 2003 and the six months ended June 30, 2004 havebeen derived from the Predecessor’s audited historical financial statements forthe respective periods.

 

The table also includes the selectedconsolidated financial data of The Wornick Company, a Delaware corporation (the“Successor”) and its consolidated subsidiaries as of and for the six monthsended December 31, 2004.   The selectedconsolidated financial data of the Successor as of and for December 31, 2004have been derived from, and should be read together with, the Successor’saudited financial statements for such period.

 

In the opinion of management, all adjustmentsconsidered necessary for a fair presentation of our interim results andfinancial position have been included in the interim results and financialposition of the Successor as of and for the six months ended December 31, 2004and in the interim results of the Predecessor for the six months ended June 30,2004.  Interim results are notnecessarily indicative of the results that can be expected for a full fiscalyear.  The selected consolidatedfinancial data as of and for the fiscal year ended December 31, 2000 have beenderived from the Predecessor’s unaudited financial statements.  The selected consolidated financial data setforth below are not necessarily indicative of the results of future operationsand should 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 maynot be comparable to the Successor’s consolidated financial data.  Most notably, the liquidity position of theSuccessor is substantially different than that of the Predecessor, includingthe overall level of debt and resulting amount of interest expense in fiscalperiods subsequent to June 30, 2004.

 

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| ** **                                    | ** ** | **Predecessor**                    | ** ** | ** **                      | **Successor** | ** ** |
|-----------------------------------------------|------------|------------------------------------|------------|---------------------------------|---------------|------------|
| ** **                                    | ** ** | **Fiscal Year as of December 31,** | ** ** | **Six Months  Ended  June 30,** | ** **    | ** ** | **Six Months  Ended  December 31,** | ** ** |
| **(dollars in thousands)**                    | ** ** | **2000**                           | ** ** | **2001**                        | ** **    | **2002**   | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **(unaudited)**                    | ** ** | ** **                      | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income Statement Data**                     | ** ** | ** **                         | ** ** | ** **                      | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Sales                                     |       | $                                  | 64,345     |                            | $             | 94,191     |   | $ | 130,434 |   | $ | 318,370 |   | $ | 80,924 |   |   | $ | 100,381 |   |
| Cost of sales                                 |       | 52,704                             |       | 77,419                          |          | 108,418    |   | 265,447 |   | 67,753 |   |   | 83,308 |   |
|                                          |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Gross Profit                                  |       | 11,641                             |       | 16,772                          |          | 22,016     |   | 52,923 |   | 13,171 |   |   | 17,073 |   |
| Selling, general and administrative  expenses |       | 9,875                              |       | 11,598                          |          | 21,043     |   | 27,008 |   | 12,459 |   |   | 9,072 |   |
|                                          |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Operating profit                              |       | 1,766                              |       | 5,174                           |          | 974        |   | 25,915 |   | 712 |   |   | 8,001 |   |
| Other income (expense)                        |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Interest expense                              |       | (1,375                             | )          | (1,012                          | )             | (671       | ) | (537 | ) | (100 | ) |   | (7,151 | ) |
| Interest income                               |       | 131                                |       | 132                             |          | 99         |   | 244 |   | 507 |   |   | 87 |   |
| Other income                                  |       | 247                                |       | 781                             |          | 849        |   | 980 |   | 369 |   |   | 4 |   |
|                                          |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Total other income (expense)                  |       | (996                               | )          | (99                             | )             | 277        |   | 687 |   | 776 |   |   | (7,060 | ) |
|                                          |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Income before income taxes                    |       | 770                                |       | 5,076                           |          | 1,250      |   | 26,602 |   | 1,488 |   |   | 941 |   |
| Income tax expense (benefit)                  |       | 184                                |       | 278                             |          | (31        | ) | 439 |   | 41 |   |   | 964 |   |
| Net income (loss)                             |       | $                                  | 586        |                            | $             | 4,797      |   | $ | 1,281 |   | $ | 26,163 |   | $ | 1,447 |   |   | $ | (23 | ) |
|                                               |            |                                    |            |                                 |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

16

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| ** **                             | ** ** | **Predecessor**        | ** ** | ** ** | **Successor**           | ** ** |
|----------------------------------------|------------|------------------------|------------|------------|-------------------------|------------|
| ** **                             | ** ** | **As of December 31,** | ** ** | ** ** | **As of  December 31,** | ** ** |
| **(dollars in thousands)**             | ** ** | **2000**               | ** ** | **2001**   | ** **              | **2002**   | ** ** | **2003** | ** ** | ** ** | **2004** | ** ** |
| ** **                             | ** ** | **(unaudited)**        | ** ** | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Selected  Balance Sheet Data:**      |       |                   |       |       |                    |       |   |   |   |   |   |   |
| Cash and cash equivalents              |       | $                      | 1,178      |       | $                       | 2,264      |   | $ | 1,042 |   | $ | 5,291 |   |   | $ | 3,289 |   |
| Investments                            |       | —                 |       | 929        |                    | 3,000      |   | 8,993 |   |   | — |   |
| Property, plant and equipment net      |       | 6,173                  |       | 10,448     |                    | 14,670     |   | 21,718 |   |   | 32,794 |   |
| Total assets                           |       | 32,282                 |       | 43,407     |                    | 63,698     |   | 86,709 |   |   | 179,494 |   |
|                                   |       |                   |       |       |                    |       |   |   |   |   |   |   |
| Total debt (excluding book overdrafts) |       | 13,862                 |       | 14,628     |                    | 18,175     |   | 4,993 |   |   | 125,000 |   |
| Total equity                           |       | 11,817                 |       | 17,677     |                    | 23,499     |   | 57,155 |   |   | 37,623 |   |
|                                        |            |                        |            |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | **Predecessor**                    | ** ** | ** **                      | **Successor** | ** ** |
|------------------------------------------------|------------|------------------------------------|------------|---------------------------------|---------------|------------|
| ** **                                     | ** ** | **Fiscal Year as of December 31,** | ** ** | **Six Months  Ended  June 30,** | ** **    | ** ** | **Six Months  Ended  December 31,** | ** ** |
| **(dollars in thousands)**                     | ** ** | **2000**                           | ** ** | **2001**                        | ** **    | **2002**   | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | **2004** | ** ** |
| ** **                                     | ** ** | **(unaudited)**                    | ** ** | ** **                      | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other  Financial Data:**                     |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Depreciation of property, plant and  equipment |       | $                                  | 968        |                            | $             | 1,223      |   | $ | 1,632 |   | $ | 2,300 |   | $ | 1,387 |   |   | $ | 1,756 |   |
| Goodwill amortization                          |       | 775                                |       | 775                             |          | —     |   | — |   | — |   |   | — |   |
| Capital expenditures                           |       | 1,281                              |       | 6,225                           |          | 6,046      |   | 12,526 |   | 2,383 |   |   | 4,301 |   |
| Net cash provided by (used in):                |       |                               |       |                            |          |       |   |   |   |   |   |   |   |   |
| Operating activities                           |       | 5,814                              |       | 6,894                           |          | 2,933      |   | 34,552 |   | (472 | ) |   | 10,125 |   |
| Investing activities                           |       | (1,261                             | )          | (6,030                          | )             | (7,863     | ) | (17,708 | ) | (11,792 | ) |   | (169,336 | ) |
| Financing activities                           |       | (3,919                             | )          | (316                            | )             | 3,708      |   | (12,595 | ) | 8,314 |   |   | 162,500 |   |
| EBITDA (a)                                     |       | (b                                 | )          | 7,953                           |          | 3,455      |   | 29,195 |   | 2,468 |   |   | 12,108 |   |
| Adjusted EBITDA (a)                            |       | (b                                 | )          | 10,323                          |          | 15,058     |   | 43,714 |   | 10,473 |   |   | 14,532 |   |
|                                                |            |                                    |            |                                 |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(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 EBITDA adjusted to exclude (i)non-recurring charges related to inventory step-up, (ii) non-recurringtransaction expenses attributable to the acquisition of our business from thepredecessor company on June 30, 2004 and (iii) non-cash ESOP charges and otherstock-based compensation expenses incurred by the predecessor company and thenon-cash compensation expense relating to the grant of Class B interests in ourparent, TWC Holding LLC, to certain of our officers and directors.  We define EBITDA as net income (loss) beforeincome tax expense (benefit), interest expense, net depreciation of propertyand equipment and amortization of intangibles. Our management believes that adjusted EBITDA is useful to investors inevaluating our operating performance because EBITDA, which eliminates theeffects of income taxes, financing and the accounting effects of capitalspending, each of which may vary for different companies for reasons unrelatedto overall operating performance, and the adjustments made in arriving atadjusted EBITDA, provide information regarding our

 

17

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ability to service and/or incur debt.  EBITDA and adjusted EBITDA are notpresentations made in accordance with U.S. generally accepted accountingprinciples, or “U.S. GAAP.”  Accordingly,when analyzing our operating performance, investors should not consider EBITDAor adjusted EBITDA in isolation or as a substitute for net income, cash flowsfrom operating activities or other income statement or cash flow statement dataprepared in accordance with U.S. GAAP.  Ourcalculation of adjusted EBITDA is not necessarily comparable to that of othersimilarly titled measures reported by other companies.  The calculation of EBITDA and adjusted EBITDAis shown below:

 
| ** **                                                       | ** ** | **Predecessor**                    | ** ** | ** **                     | **Successor** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------|---------------|------------|
| **(unaudited)**                                                  | ** ** | **Fiscal Year as of December 31,** | ** ** | **Six Months  Ended June 30,** | ** **    | ** ** | **Six Months  Ended December 31,** | ** ** |
| **(dollars  in thousands)**                                      | ** ** | **2001**                           | ** ** | **2002**                       | ** **    | **2003**   | ** ** | **2004** | ** ** | ** ** | **2004** | ** ** |
|                                                             |       |                               |       |                           |          |       |   |   |   |   |   |   |
| Net income                                                       |       | $                                  | 4,797      |                           | $             | 1,281      |   | $ | 26,163 |   | $ | 1,447 |   |   | $ | (23 | ) |
| Income tax expense (benefit)                                     |       | 278                                |       | (31                            | )             | 439        |   | 41 |   |   | 964 |   |
| Interest expense (income), net                                   |       | 880                                |       | 572                            |          | 293        |   | (407 | ) |   | 7,064 |   |
| Depreciation of property and equipment                           |       | 1,223                              |       | 1,632                          |          | 2,300      |   | 1,387 |   |   | 1,756 |   |
| Amortization of intangibles                                      |       | 775                                |       | —                         |          | —     |   | — |   |   | 2,347 |   |
| EBITDA                                                           |       | 7,953                              |       | 3,454                          |          | 29,195     |   | 2,468 |   |   | 12,108 |   |
| 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 |   |
| Adjusted EBITDA                                                  |       | $                                  | 10,323     |                           | $             | 15,058     |   | $ | 43,714 |   | $ | 10,473 |   |   | $ | 14,532 |   |

 

(b)         We have not presented EBITA or adjusted EBITDAinformation for the fiscal year ended December 31, 2000 because not all of thefinancial data necessary to compute EBITDA and adjusted EBITDA are available.

 

## **Item 7**:       Management’s Discussion andAnalysis of Financial Condition and Results of Operations

 

The following discussion relates to thefinancial condition and results of operations of our predecessor company, orthe “Predecessor,” as of and for the fiscal years December 31, 2002 andDecember 31, 2003 and the six months ended June 30, 2004 and the financialcondition and results of operations of our company, or the “Successor” or the“Company,” as of and for the six months ended December 31, 2004.  This section should be read in conjunctionwith our Consolidated FinancialStatements and considered with “—Risk Factors” discussed below, Item 7A,“Quantitative and Qualitative Disclosures About Market Risk” and “CautionaryStatements Regarding Forward Looking Statements,” which precedes Part I, Item 1above.

 

As a result of the acquisitiontransaction as described in Note 2 to our Consolidated Financial Statements andelsewhere in this filing we have combined the results of the Predecessor forthe six months ended June 30, 2004 and the Company for the six months endedDecember 31, 2004 in the discussion below in order to provide investors a moremeaningful period-to-period comparison. However, as a result of the acquisition transaction and relatedfinancings, the historical consolidated financial and other data of thePredecessor may not be comparable to the Company’s financial data.  Most notably, the liquidity position of theCompany is substantially different than that of the Predecessor, including theoverall level of debt and resulting amount of interest expense in

 

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fiscal periods subsequent to June 30,2004.  In addition, as a result of theacquisition transaction, a new basis was established as of July 1, 2004 foreach of our assets.  Accordingly, thecombined pro forma financial information for the twelve months ended December31, 2004 combines results of operations under two separate bases of accounting,the Predecessor’s basis and the Successor’s basis.

 

We have combined the auditedfinancial information for the six months ended June 30, 2004 of the Predecessorand the six months ended December 31, 2004 of the Successor on an unaudited proforma basis in which we combined the respective audited financial informationas originally presented.  The pro formainformation provided in the table below in “—Results of Operations” does notpurport to represent what our consolidated results of operations would havebeen if the Company had actually been formed on January 1, 2004, nor have wemade any attempt to either include or exclude expenses or income that would have resultedhad the acquisition actually occurred on January 1, 2004.  

 

**Executive Overview**

 

We are the leading supplier of individual andgroup military field rations to the DoD. We specialize in the production,packaging and distribution of extended shelf-life, shelf stable and frozenfoods in flexible pouches and semi-rigid containers. With over 30 years ofexperience in the food manufacturing and food processing businesses, we believewe have a reputation for superior quality and service in developing andproducing unique meal solutions for the military and for the consumer andfoodservice markets. We are a primary supplier to the DoD of MREs, UGR-As and thepolymeric trays used in the UGR-H&S program. Our customers also includeKraft, Gerber, Quaker, the Canadian Ministry of Defense, retail storesincluding Walgreen and 7-Eleven, and grocery stores such as Kroger, Publix andMeijer. 

 

The majority of our net sales are derivedfrom contracts with the DoD, through the DSCP. Sales to the U.S. Governmentaccounted for approximately 80.5%, 89.4%, and 82.6% of net sales for the years ended December 31, 2002, 2003and, on a pro forma basis, 2004, respectively. Our U.S. Government receivablesat December 31, 2003 and 2004, accounted for approximately 82.0% and73.1%, respectively, of our accounts receivable. 

 

Sales to the military depend to a significant extent on troopdeployment levels, mobilization strategies, training exercise activities andthe general level of the DoD budget. In 2003, there was a significant increasein military demand due to U.S. troop deployment in Iraq, Afghanistan andelsewhere, and this increase resulted in a significant increase in our netsales for 2003. During 2004, orders for our military food products havesignificantly decreased relative to comparable periods in 2003. We believe thatthe demand for our military food products will remain strong due to continuedelevated levels of deployment of U.S. armed forces in Afghanistan and Iraq andhigh levels of U.S. military activity worldwide. However, demand may not remainat current levels or fluctuations in the military’s demand for our foodproducts may have a material adverse effect on our results of operations orfinancial condition.  See Part I, Item 1,“Business—Industry Outlook—Military.”

 

We are focused on maintaining our position as the only supplier toparticipate in all of the U.S. military’s major field feeding programs (MRE, UGR-Aand UGR-H&S), and we seek to increase our participation in these programsas the DSCP continues to outsource production activities that are currentlyperformed by the U.S. Government. Our U.S. Government contracts typically fallinto two categories, fixed-price contracts and indefinite delivery, indefinitequantity contracts. In a fixed-price contract, the price is based on apre-determined rate and is not subject to adjustment based on the actual costsincurred, except for key commodity items which are priced according to industryindexes. Although our fixed-price contracts generally permit us to keep profitsif costs are less than projected, we bear the risk that increased or unexpectedcosts may reduce profit or cause us to sustain losses on these contracts.Currently, we have two primary fixed-price contracts, one for MREs and one forTray-Packs. Our indefinite delivery, indefinite quantity contract for the UGR-Amodules calls for delivery on an order-by-order basis. Every week, we and othercontractors submit updated component pricing to the DSCP for the next week toadjust for commercial component price fluctuations. This component priceinformation is used to determine the price for all UGR-As ordered during thefollowing weekly period. For the years ended December 31, 2002, 2003 and,on a pro forma basis, 2004, we generated approximately 50.6%, 49.5% and 58.9%of our net sales from fixed-price contracts and approximately 30.0%, 39.9% and23.7% from the indefinite delivery, indefinite quantity contract, respectively.

 

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In 1998, we began to expand our commercialbusiness. As part of our commercial expansion, we have establishedco-manufacturing relationships with leading branded companies such as Kraft,Gerber and Quaker for a variety of extended shelf-life products.  See Part I, Item 1, “Business—IndustryOutlook—Commercial.”

 

In 2000, we launched our own line of consumerbranded food, Homestyle Express. Our Homestyle Express brand is positioned inthe consumer retail channel and in distribution with accounts such as Kroger,Walgreen, Publix, and 7-Eleven.  Whileconsumer feedback on the Homestyle Express brand has been favorable, we are notgenerating the sales and profitability we initially targeted.  We are reviewing alternatives for ourHomestyle Express brand.  

 

An increasing amount of our revenues is derived from co-manufacturingcontracts with leading branded food companies. Revenues derived from ourco-manufacturing contracts represented approximately 10.0%, 8.0%, and 12.3% ofour revenues for the years ended December 31, 2002, 2003 and, on a proforma basis, 2004, respectively. Receivables from commercial co-manufacturingcustomers accounted for approximately 10.0% and 18.5% of trade accounts receivableas of December 31, 2003 and December 31, 2004, respectively. Ourco-manufacturing contracts are performed under several different pricingarrangements, ranging from “toll only,” under which we are responsible forlabor, overhead and profits, but not materials, to fully-costed contracts underwhich we also purchase the materials. 

 

We continually seek opportunities to use our technologies andexperience to partner with established branded food companies in newco-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 ofthese opportunities. Most of our 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 is obligatedto reimburse us for up to 90% of the total invested capital (or lease cost)over the course of the initial term of the supply agreement which is typicallypaid over three to five years. For agreements where equipment is purchased, weown all of the equipment acquired under such agreements, or retain the rightsto purchase the equipment at the end of the lease at fair market value. If aproduct is discontinued, the customer is still required to pay the entirebalance of the capital commitment. If we do not use the entire capacity of theequipment to supply our co-manufacturing customer, we have the right to use theequipment in our other businesses. 

 

In evaluating our financial condition andoperating performance, our senior management focuses on net income, cash flow,sales growth 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 management believes that adjusted EBITDAis useful to investors in evaluating our operating performance because EBITDA,which eliminates the effects of income taxes, financing and the accountingeffects of capital spending, each of which may vary for different companies forreasons unrelated to overall operating performance, and the adjustments made inarriving at adjusted EBITDA, provide information regarding our ability toservice and/or incur debt.  Furthermore,the indenture governing the notes contains covenants based on adjustedEBITDA.  For a discussion of EBITDA andadjusted EBITDA, see Note (a) to Part II, Item 6, “Selected Financial Data.” 

 

**The Transactions**

 

On December 3, 2003, the Successor andVeritas Capital Management entered into an Assets Purchase and Sale Contractwith the Predecessor and its subsidiaries, The Wornick Company Right AwayDivision, a Nevada corporation, The Wornick Company Right Away Division, L.P.,a Texas limited partnership, and Right Away Management Corporation, a Texascorporation. The Assets Purchase and Sale Contract, as amended, provided forthe Acquisition.  The gross purchaseprice of the business, subject to a post-closing purchase price adjustment, was$155 million, of which $150 million was paid to the sellers at the closing andthe remaining $5 million was paid to an escrow agent as escrow for the sellers’obligations under the Assets Purchase and Sale Contract.  The acquisition transaction closed on June30, 2004.

 

20

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The Successor funded the Acquisition priceand the related fees and expenses with the proceeds of its offering of theoriginal notes and the equity investments in TWC Holding LLC, the parent of theSuccessor, as follows: 

 

•                  thepurchase by the equity investors of Class A interests in TWC Holding LLCfor $37.5 million in cash; 

 

•                  thecontribution by TWC Holding LLC to the capital of the Successor of all cashreceived by it from the equity investors; and 

 

•                  grossproceeds to the Successor of $125 million from the issuance and sale ofthe original notes. 

 

The closing of the offering of the originalnotes occurred simultaneously with the closing of the Acquisition, our newworking capital facility (described below) and the other financing transactionsdescribed above. 

 

We entered into a new senior secured revolvingworking capital credit facility of up to $25 million concurrently with theclosing of the Acquisition and the offering. We make monthly interest paymentson amounts borrowed under the facility at an annual adjustable interest ratecalculated in accordance with the applicable promissory note. 

 

Prior to the closing of the Acquisition, theSuccessor assigned purchase rights with respect to the operating assets thenheld by The Wornick Company Right Away Division, L.P., a Texas limitedpartnership, to The Wornick Company Right Away Division, L.P., a Delawarelimited partnership, an indirect wholly owned subsidiary of the Successor. TheWornick Company Right Away Division, L.P., a Delaware limited partnership,purchased these operating assets at the closing of the Acquisition. 

 

In October 2004, approximately $99,000 waspaid by the sellers to us as a purchase price adjustment.  To date, we have not submitted any requestfor payment against the escrowedfunds.  If no requests for paymentagainst the escrow are made by September 30, 2005, the escrowed funds will bereleased to the sellers.

 

**Critical Accounting Policies**

 

The following significant accounting policiesaffect the 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 sales wheneach of the following conditions have been met: an arrangement exists, deliveryhas occurred, there is a fixed price, and collectibility is reasonably assured,which is generally upon shipment. We record estimated discounts as a reductionin revenue in the same period revenue is recognized based on historical experience.

 

*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 for doubtfulaccounts.

 

*Estimates*.  The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Our actual results could differ fromthose estimates.

 

*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 mayrequire additional allowances.

 

21

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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 useful liveswould impact the amount of depreciation and amortization expense recorded inearnings in the relevant period.

* *

*Stock Option Plans*.  As permitted by the Statement of FinancialAccounting Standard No. 123, “Accounting for Stock-Based Compensation,” we haveelected to apply the provision of Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” (“Opinion No. 25”), in recognizingcosts associated with our stock option plans. Under Opinion No. 25,compensation is measured as the difference between the option’s exercise priceand the fair value of the underlying shares at the measurement date andsubsequent changes in the fair value of the underlying shares through the datethe option is exercised or otherwise settled. The measurement date is the firstdate on which both the number of shares subject to the option and the optionexercise price are known. All of our option arrangements are compensatory. Therelated compensation expense has been determined based upon the estimated fairvalue of our common stock.

* *

*Income Taxes*.  The Predecessor has elected to be taxed as aSub-Chapter S corporation for federal income tax purposes. The Successor hasnot made this election and will be subject to federal income taxes.  For state tax purposes, income taxes wereaccounted for under the asset and liability method during 2002 and 2001.Beginning in 2003, the Predecessor was no longer subject to state income taxes.

 

Deferred tax assets and liabilities were recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbasis and operating loss and tax credit carryforwards. Deferred tax assets andliabilities were measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of achange in tax status or tax rates is recognized in income in the period thatincludes the enactment date.  We reviewthese deferred tax assets periodically and record valuation allowances asdeemed necessary.

* *

*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 approximates fair value due to its variable interest rate. Therecorded value of the long-term debt approximates fair value based on borrowingrates currently available to us for financing arrangements with similar termsand average maturities.

* *

*Goodwill*.  Goodwill is stated at cost. During the yearended December 31, 2001, goodwill was amortized using the straight-line methodover 20 years. Subsequent to January 1, 2002, goodwill is no longer amortized.The carrying value of goodwill is tested for impairment at least annually. Therecoverability of unamortized goodwill is based upon the fair value which is determinedby using a discounted cash flow analysis, which is consistent with how wedetermine the fair value of our common stock for our stock option plans andother such compensation arrangements.

 

In connection with determining an estimatedfair value, 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 their related assumptions change inthe future, we may be required to record goodwill impairment charges in thefuture.

 

**Results of Operations**

 

The following pro forma table summarizes ourhistorical operations for the fiscal years ended December 31, 2002, 2003and for the six months ended June 30, 2004 and December 31, 2004:

 

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| ** **                                    | ** ** | **Predecessor**             | ** ** | ** **                 | **Successor** | ** **        | **Pro Forma**              | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|----------------------------|---------------|-------------------|----------------------------|------------|
| **(dollars in thousands)**                    | ** ** | **Year ended December 31,** | ** ** | **Six-Month Period Ended** | ** **    | ** **        | **Six-Month Period Ended** | ** ** | **Year ended December 31,** | ** ** |
| **Income  statement data:**                   | ** ** | **2002**                    | ** ** | **2003**                   | ** **    | **June 30, 2004** | ** **                 | ** ** | **December 31, 2004** | ** ** | **2004** | ** ** |
| Net  sales                                    |       | $                           | 130,434    |                       | $             | 318,370           |                       | $          | 80,924 |   |   | $ | 100,381 |   | $ | 181,305 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Cost  of sales                                |       | 108,418                     |       | 265,447                    |          | 67,753            |                       |       | 83,308 |   | 151,061 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Gross  profit                                 |       | 22,016                      |       | 52,923                     |          | 13,171            |                       |       | 17,073 |   | 30,244 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Selling,  general and administrative expenses |       | 21,043                      |       | 27,008                     |          | 12,459            |                       |       | 9,072 |   | 21,531 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Operating  profit                             |       | 974                         |       | 25,915                     |          | 712               |                       |       | 8,001 |   | 8,713 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Other  income (expense):                      |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Interest  expense                             |       | (671                        | )          | (537                       | )             | (100              | )                          |       | (7,151 | ) | (7,251 | ) |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Interest  income                              |       | 99                          |       | 244                        |          | 507               |                       |       | 87 |   | 594 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Other  income, net                            |       | 849                         |       | 980                        |          | 369               |                       |       | 4 |   | 373 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Total  other income (expense)                 |       | 277                         |       | 687                        |          | 776               |                       |       | (7,060 | ) | (6,284 | ) |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Income  before income taxes                   |       | 1,250                       |       | 26,602                     |          | 1,488             |                       |       | 941 |   | 2,429 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Income  tax (income) expense                  |       | (31                         | )          | 439                        |          | 41                |                       |       | 964 |   | 1,005 |   |
|                                          |       |                        |       |                       |          |              |                       |       |   |   |   |   |
| Net  income (loss)                            |       | $                           | 1,281      |                       | $             | 26,163            |                       | $          | 1,447 |   |   | $ | (23 | ) | $ | 1,424 |   |

 

23

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

 

*Net Sales.* Our net sales for the twelve months ended December 31, 2004, on a proforma basis, were $181.3 million representing a decrease of $137.1 million, or43.1%, compared to net sales of $318.4 million for the year ended December31, 2003. The decrease in net sales resulted primarily from a $134.9 milliondecrease in sales to the DoD.  Thisdecrease was due mostly to higher military sales volumes in 2003 associatedwith surge production to support the war in Iraq, which were reduced in2004.  Co-manufacturing sales decreasedby $3.3 million during the same period due to Kraft’s discontinuation of one ofits co-manufactured products resulting in a reduction of our net sales by $6.8million, partially offset by increases in our other co-manufacturing lines of$3.5 million.  Net sales of our brandedconsumer and commercial 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 proforma basis, was $30.2 million, representing a decrease of $22.7 million, or42.9%, compared to gross profit of $52.9 million in the year endedDecember 31, 2003. The decrease in gross profit was due primarily to decreasedsales volumes in our military business. As a percentage of net sales, our grossprofit was 16.7% for the twelve months ended December 31, 2004, on a pro formabasis, and 16.6% for the year ended December 31, 2003.

 

*Selling, General and Administrative Expenses.*  Our selling, general and administrativeexpenses in the twelve months ended December 31, 2004, on a pro forma basis,were $21.5 million, representing a decrease of $5.5 million, or 20.3%, comparedto selling, general and administrative expenses of $27.0 million in the yearended December 31, 2003. Selling, general and administrative expenses increasedto 11.9% of net sales in the twelve months ended December 31, 2004, on a proforma basis, from 8.5% in the year ended December 31, 2003. This increase wasprimarily attributable to several non-recurring expenses in the period,including severance payments to the former president of our Prepared FoodsDivision and costs associated with consummating the Transactions.  These costs totaled $1.7 million in thetwelve months ended December 31, 2004, on a pro forma basis.  In addition, our sales in 2004, on a proforma basis, were 43.1% lower than in 2003, resulting in an increase in ourselling, general and administrative expenses, as a percentage of sales, due toa 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 $7.3 million,representing an increase of approximately $6.7 million compared to interestexpense of approximately $537,000 in the year ended December 31, 2003.  The increase in interest expense resultedfrom the interest on our long term debt incurred in the Transactions andrelated amortization of expenses related 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 of invested cashby the Predecessor.

 

*Other Income, Net.*  Our other income in the twelve months endedDecember 31, 2004, on a pro forma basis, was approximately $373,000,representing a decrease of approximately $607,000, or 61.9%, compared to otherincome of approximately $980,000 in the year ended December 31, 2003. Thisdecrease in other income was a result of reduced rebates from the ValueEngineering Change program (the “VE program”), which are recognized as earnedover a period of three years. The VE program provides incentives for U.S.Government contractors to make cost savings proposals to the DSCP. Once theDSCP accepts a contractor’s VE proposal, the contractor is awarded 50% of theresulting industry-wide savings for a period of three years following theissuance by the DSCP of a contract modification requiring implementation of theproposed 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 in 

 

24

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income taxexpense in 2004, on a pro forma basis, as compared to 2003 is related to ourrecording deferred tax liabilities of approximately $1.2 million and deferredtax assets of approximately $270,000 as of December 31, 2004.

 

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

 

***Comparison of thefiscal year ended December 31, 2003 to the fiscal year endedDecember 31, 2002***

* *

*Net Sales.* Our net sales for 2003 were $318.4 million, representing anincrease of $187.9 million, or 144.1%, compared to net sales of$130.4 million for 2002. The increase in net sales resulted primarily froma $179.6 million increase in sales to the DoD. The bulk of the increase inmilitary sales was a result of the commencement of the war in Iraq and othermilitary activity around the world, including the continuing conflict inAfghanistan. This includes an increase of $87.9 million in MRE sales to$135.3 million in 2003 from $47.4 million in 2002. The expansion ofour UGR-A assembly and distribution activities contributed approximately $87.9million to this increase. The overall increase in sales to the DoD waspartially offset by a decrease of $2.9 million in sales of HDRs, to$1.9 million in 2003 from $4.8 million in 2002.  Increased co-manufacturing activitycontributed an additional $12.6 million to the increase in net sales,attributable to increase of activity with our co-manufactured products with Kraftand Gerber.

 

*Gross Profit.* Our gross profit in 2003 was $52.9 million, representing anincrease of $30.9 million, or 140.4%, compared to gross profit of$22.0 million in 2002. The increase in gross profit resulted primarilyfrom increased sales volumes, both in our military and commercial businesses.Our gross margins generally increased in 2003. In particular, the margins onour MRE sales improved significantly due to increased efficiencies associatedwith high MRE sales volumes. The benefits of these improved margins were offsetby decreases in the margins on our UGR-A sales resulting from increasedcompetition and a greater portion of our net sales attributable to shipmentsoutside the continental United States, which generally result in lower marginsthan our shipments within the continental United States. As a percentage of netsales, our gross profit was relatively stable at 16.6% and 16.9% in 2003 and2002, respectively.

 

*Selling, General and Administrative Expenses.*  Our selling, general and administrativeexpenses in 2003 were $27.0 million, representing an increase of$6.0 million, or 28.3%, compared to $21.0 million in 2002. Selling,general and administrative expenses decreased to 8.5% of net sales in 2003 from16.1% in 2002. The increase in selling, general and administrative expenses wasdue substantially to additional compensation expense of $2.9 millionrelating to shares of common stock released to the ESOP. Other increases inselling, general and administrative expenses were the result of expensesassociated with increasing and sustaining a higher level of operations at ourfacilities, including employment expenses and security costs.

 

*Operating Profit.*  Our profit from operations was$25.9 million in 2003, representing an increase of $24.9 millioncompared to $1.0 million in 2002. This increase in profit from operationsresulted primarily from the increased sales discussed above.

 

*Interest Expense.*  Our interest expense in 2003 wasapproximately $537,000, representing a decrease of approximately $134,000, or20.0%, compared to interest expense of approximately $671,000 in 2002. Thedecrease in interest expense resulted from the reduction of the ESOP debt aswell as reduced working capital financing.

 

*Interest Income.*  Our interest income in 2003 was approximately$244,000, representing an increase of approximately $145,000, or 146.5%,compared to interest income of approximately $99,000 in 2002. The increase ininterest income resulted from an increase in notes issued to customers as wellas increased short-term investments due to increased cash availability.

 

*Other Income, Net.*  Our other income in 2003 was approximately$980,000, representing an increase of approximately $131,000, or 15.4%,compared to other income of approximately $849,000 in 2002. This increase inother income was a result of income derived from awards we received under theVE program.

 

*Income Tax Expense.*  The provision for state and local incometaxes in 2003 was approximately $439,000, or 1.7% of pretax income, compared toa provision for state and local income taxes of approximately $(31,000) in2002.

 

*Net Income.* As a result of the foregoing, we earned net income of $26.1 millionin 2003, representing an increase of approximately $24.9 million compared to$1.3 million in 2002.

 

25

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**OperatingSegment Results**

 

We have tworeportable segments.  The RAD division isour core military supply business and the PFD division includes our coreconsumer and commercial business.  Inaddition, the PFD division supplies the RAD division with intermediate itemsused to assemble products distributed by the RAD division as well as directlysupplying military customers with certain items.  The discussion below of the operating resultsof these two segments should be read in conjunction with Note 15 to our Consolidated Financial Statements.

 

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

* *

*Net Sales.* Net sales for the RAD segment declined by $123.6 million for the twelve monthsended December 31, 2004, on a pro forma basis, compared to the year endedDecember 31, 2003 due to decreased sales to the DoD.  Net sales for the PFD segment declined by$13.5 million for the twelve months ended December 31, 2004, on a pro forma basis,compared to the year ended December 31, 2003(excluding inter-segment sales,which declined by $18.1 million during the same period) due to reductions inour Tray-Pack sales to the DoD of $12.8 million and reduced sales of ourcommercial products in 2004. Co-manufacturing sales decreased by $3.3 million during the same perioddue to Kraft’s discontinuation of one of its co-manufactured products resultingin a reduction of our net sales by $6.8 million, partially offset by increasesin our other co-manufacturing lines of $3.5 million.  Net sales of our branded consumer andcommercial businesses increased in 2004 by $2.4 million.

 

*Operating Profit.*  Profit from operations decreased by $17.4million for the twelve months ended December 31, 2004, on a pro forma basis,compared to the year ended December 31, 2003 for the RAD segment due to adecrease in sales to the DoD and a return to non-surge production in 2004.  Profit from operations decreased by $4.5million for 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.

 

***Comparison of thefiscal year ended December 31, 2003 to the fiscal year endedDecember 31, 2002***

* *

*Net Sales.* Net sales for the RAD segment increased by $173.5 million for theyear ended December 31, 2003 compared to the year ended December 31, 2002 dueto increased military sales in 2003. Net Sales for the PFD segment (excludinginter-segment sales) increased by $14.5 million for the year endedDecember 31, 2003 compared to the year ended December 31, 2002 due to bothincreased military sales and co-manufacturing sales in 2003.

 

*Operating Profit.*  Profit from operations increased for the yearended December 31, 2003 compared to the year ended December 31, 2002 by$17.5 million for the RAD segment and $9.0 million for the PFDsegment, both due mainly to increased wartime production volumes in 2003. Theincrease in profit at the operating segments was offset by an overall increasein operating costs of $1.7 million for the year ended December 31, 2003compared to the year ended December 31, 2002 in the corporate segment, mainlydue to increased deferred compensation expenses resulting from increases instock valuation in 2003.

 

**Liquidityand Capital Resources**

 

The following table summarizes our net cash provided by or used in ouroperating activities, investing activities and financing activities and our capitalexpenditures for the fiscal years ended December 31, 2002 and 2003 and thesix months ended June 30, 2004 and December 31, 2004:

 

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| ** **                      | ** ** | **Predecessor**                         | ** ** | ** **                      | **Successor** | ** ** |
|---------------------------------|------------|-----------------------------------------|------------|---------------------------------|---------------|------------|
| ** **                      | ** ** | **Fiscal Year Ended December 31,** | ** ** | **Six Months  Ended  June 30,** | ** **    | ** ** | **Six Months  Ended  December 31,** | ** ** |
| **(dollars in thousands)**      | ** ** | **2002**                                | ** ** | **2003**                        | ** **    | **2004**   | ** ** | ** ** | **2004** | ** ** |
| ** **                      | ** ** | ** **                              | ** ** | ** **                      | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash provided by (used in): |       |                                    |       |                            |          |       |   |   |   |   |
| Operating activities            |       | $                                       | 2,933      |                            | $             | 34,552     |   | $ | (472 | ) |   | $ | 10,125 |   |
| Investing activities            |       | (7,863                                  | )          | (17,708                         | )             | (11,792    | ) |   | (169,336 | ) |
| Financing activities            |       | 3,708                                   |       | (12,595                         | )             | 8,314      |   |   | 162,500 |   |
| Capital expenditures            |       | (6,046                                  | )          | (12,526                         | )             | (2,383     | ) |   | (4,301 | ) |
|                                 |            |                                         |            |                                 |               |            |  |  |  |  |  |  |  |  |

 

*Operating Activities*

 

Net cashprovided by (used in) operating activities was approximately $(472,000) and$10.1 million for the six months ended June 30, 2004 for the Predecessor andDecember 31, 2004 for the Successor, respectively.  Cash generated from operations decreased inthe twelve months ended December 31, 2004, on a pro forma basis, compared tothe year ended December 31, 2003 due mostly to higher military sales volumes inthe year ended December 31, 2003 associated with surge production to supportthe war in Iraq, which were reduced in 2004. In the six months ended June 30, 2004, the Predecessor usedadditional 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.  The Successor received the benefit of thatshipment, and had no stock compensation plan payments in the period as did thePredecessor in the prior period, as well as bond interest not being due untilJanuary 15, 2005, the result being an increase in cash from operations of $10.1million.

 

Net cashprovided by operating activities was $34.6 million and $2.9 million for theyear ended December 31, 2003 and 2002, respectively. This increase wasprimarily due to increased sales to the DoD and our commercial customers.

 

*Investing Activities*

 

Net cash usedin investing activities was $11.8 million and $169.3 million for the six monthsended June 30, 2004 for the Predecessor and December 31, 2004 for theSuccessor, respectively.  Cash used ininvesting activities was $17.7 million for the year ended December 31,2003.  The $11.8 million investment bythe Predecessor in the six months ended June 30, 2004 was primarily due to the *investments* of excess cash in longer-terminvestments of approximately $10.0 million and $2.4 million in capitalequipment.  The $169.3 million investmentby the Successor in the six months ended December 31, 2004 was related to thecapital investment of $4.3 million and the Transactions of $165.0 million.

 

Net cash usedin investing activities was $17.7 million and $7.9 million for the year endedDecember 31, 2003 and 2002, respectively. This increase was due to increases incapital investments of $6.5 million and short-term investments of $3.9 millionresulting primarily from increased investments of excess cash.

 

*Financing Activities*

 

Net cashprovided by (used in) financing activities was $8.3 million and $162.5million for the six months ended June 30, 2004 for the Predecessor and December 31, 2004 for the Successor,respectively.  For the year endedDecember 31, 2003, the cash from financing activities was ($12.6) million dueto payments on the ESOP note and reduced borrowings on the Predecessor’s lineof credit.

 

Net cashprovided by (used in) financing activities was $(12.6) million and$3.7 million for the year ended December 31, 2003 and 2002,respectively. This decrease was primarily due to retirement of the Predecessor’sworking capital line of credit and other long-term debt, as well as thescheduled quarterly debt payments on its ESOP note.

 

27

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*Capital Expenditures*

 

Capitalexpenditures were $2.4 million for the six months ended June 30, 2004 and $4.3for the six months ended December 31, 2004, for a total of $6.7 million for thetwelve months ended December 31, 2004, on a pro forma basis, compared to $12.5million in the year ended December 31, 2003. Our capital investment in 2003 was significantly higher than in 2004 dueto our investment in new equipment to maintain and increase production levelsto support the DoD’s military mobilization capacity.

 

Capitalexpenditures were $12.5 million and $6.0 million for the year ended December31, 2003 and 2002, respectively. This increase in 2003 was primarily due toexpenditures at our Cincinnati facility of $5.1 million and $1.3 millionrelated to the upgrades to our retort filling and processing equipment and ourfoodservice line equipment, respectively.

 

*Long-Term Debt Expenditures*

 

The followingtable summarizes the long-term debt of the Predecessor as of December 31, 2003and the Successor as of December 31, 2004:

 
| ** **                                                                                 | ** ** | **Predecessor**               | ** ** | **Successor**                     | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                 | ** ** | **As of  December 31,  2003** | ** ** | **As of December 31,  2004** | ** ** |
| 10-7/8% Senior Secured Notes, due 2011                                                     |       | $                             | —     |                              | $          | 125,000 |   |
| Note payable to a bank in quarterly  installments of $618,095 plus interest due 2005       |       | 4,945                         |       | —                            |       |
| Note payable to a third party in monthly  installments of $1,868 plus interest due in 2006 |       | 49                            |       | —                            |       |
|                                                                                       |       | 4,994                         |       | 125,000                           |       |
|                                                                                       |       |                          |       |                              |       |
| Less: Current maturities                                                                   |       | 2,495                         |       | —                            |       |
| Total long-term debt, excluding current  maturities                                        |       | $                             | 2,499      |                              | $          | 125,000 |   |
|                                                                                            |            |                               |            |                                   |            |  |  |  |

 

28

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We incurredinterest expense of $671,000 and $537,000 for the years ended December 31,2002 and 2003, respectively, and approximately $7.3 million for the twelve monthsended December 31, 2004, on a pro forma basis.      Inconnection with the Transactions, $13.0 million of then-existing long-term debtof the Predecessor was repaid, and we issued the original notes and enteredinto our new working capital facility. As a result, we have incurred and willcontinue to incur significant debt service payments, including interest, infuture years.  Total cash interestpayments related to the notes will be approximately $13.6 million on anannual basis. To the extent we have borrowings outstanding under our newworking capital facility, we will have additional cash interest payments.

 

Because ourdirect parent, TWC Holding LLC, and its wholly-owned finance subsidiary, TWCHolding Corp., have no operations or assets other than TWC Holding LLC’sownership of our common stock, a portion of our future cash flows areanticipated to be used to make payments of interest and principal on the SeniorPIK Notes, beginning in 2005 through 2011.

 

The indenturegoverning the notes and our new working capital facility impose significantoperating and financial restrictions on us. These restrictions limit or prohibit, among other things, our ability toincur additional indebtedness, repay indebtedness prior to stated maturities,pay dividends on or redeem or repurchase our stock, issue capital stock, makeinvestments, create liens, sell certain assets or merge with or into othercompanies, enter into certain transactions with stockholders and affiliates,make capital expenditures, sell stock in our subsidiaries and restrictdividends, distributions or other payments from our subsidiaries. In additionto imposing restrictions substantially similar to those contained in theindenture governing the notes, our new working capital facility requires us to meetcertain financial ratios and financial condition tests on a periodic basis.

 

We expect ourcapital expenditures in 2005 to be approximately $11.2 million, primarilyto support plant maintenance and upgrades, efficiency improvements andexpansion of our co-manufacturing business.

 

Our principalsources of liquidity are cash flow generated from operations and borrowingsunder our working capital facility. Because we did not purchase certain workingcapital in the Transactions, we were required to draw down $3.0 million underour working capital facility to provide funds for operations and to fundexpenses incurred in connection with the Transactions.  As of December 31, 2004, we had repaid theoriginal $3.0 million and there were no borrowings outstanding on our workingcapital facility.

 

Our liquidityis dependent on a number of other factors, including the timing of collectionon our contract receivables, processing of weekly and bi-weekly payroll andassociated taxes, payment to our suppliers and employer portions of employeebenefits.  Our principal uses of cashwill be to meet debt service requirements, finance our capital expenditures andfund working 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 “—Risk Factors” below.

 

***ContractualObligations***

 

The followingsets forth our long-term debt, interest on long-term debt and operating leaseobligations as of December 31, 2004:

 
| ** **                        | ** ** | ** **         | ** ** | **Payments Due by Period** | ** ** | ** **     | ** ** |
|-----------------------------------|------------|--------------------|------------|----------------------------|------------|----------------|------------|
| **Contractual  Cash Obligations** | ** ** | **Total**          | ** ** | **Less  Than  1 Year**     | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **More  Than  5 Years** | ** ** |
| ** **                        | ** ** | **(in thousands)** | ** ** |
|                              |       |               |       |                       |       |           |       |   |   |   |   |
| Long-term debt                    |       | $                  | 125,000    |                       | $          | —         |       | $ | — |   | $ | — |   | $ | 125,000 |   |
| Interest on long-term debt        |       | 13,594             |       | 27,188                     |       | 27,188         |       | 27,188 |   | 27,188 |   |
| Operating leases                  |       | 11,191             |       | 2,614                      |       | 5,146          |       | 2,110 |   | 1,184 |   |
|                              |       |               |       |                       |       |           |       |   |   |   |   |
| Total                             |       | $                  | 149,785    |                       | $          | 29,802         |       | $ | 32,334 |   | $ | 29,298 |   | $ | 153,372 |   |

 

29

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We had nocapital lease or purchase obligations as of December 31, 2004.  As a result of the acquisition transaction,we are required to pay a management fee of approximately $300,000 per year toVeritas Capital Management.

 

**Backlog**

 

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

 

Our totalbacklog as of December 31, 2004 was $92.2 million. The following depictsour backlog as of December 31 of the year shown. 

 
| **Year**   | ** ** | **Backlog**                    | ** ** |
|------------|------------|--------------------------------|------------|
| ** ** | ** ** | **(dollars in millions)** | ** ** |
| ** ** | ** ** | ** **                     | ** ** |
| 2002       |       | $                              | 34.8       |   |
| 2003       |       | 75.1                           |       |
| 2004       |       | 92.2                           |       |
|            |            |                                |            |  |

 

It is expectedthat a substantial portion of our backlog will be converted to revenue.However, there can be no assurance that our backlog will become revenues in anyparticular period, if at all. See “Risk Factors.” As of December 31, 2004,96.3% and 3.7% of our backlog was derived from our contracts with the DSCP andour commercial contracts, respectively.

 

**Off-BalanceSheet Arrangements**

 

As of December31, 2004, we had no off-balance sheet arrangements.

 

**RecentlyIssued Accounting Standards**

 

OnNovember 24, 2004, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standard No. 151 (“SFAS No. 151”), “InventoryCosts, an amendment of ARB No. 43, Chapter 4.”  SFAS No. 151 adopts the InternationalAccounting Standards Board’s view that abnormal amounts of idle capacity andspoilage costs related to inventories should be excluded from the cost ofinventory and expensed when incurred. Additionally, the International Accounting Standards Board made thedecision to clarify the meaning of the term “normal capacity” in SFAS No.151.  The provisions of SFAS No. 151are applicable to inventory costs incurred in fiscal years beginning afterJune 15, 2005.  We have not yetdetermined the potential impact of SFAS No. 151 on our inventoryaccounting results upon its applicability to us beginning on January 1,2006.

 

**Restatementof Certain Discrepancies**

 

As describedin more detail in our current report on Form 8-K filed on February 8, 2005, webecame aware that certain discrepancies existed in the financial informationpresented in “Management’s Discussion and Analysis of Financial Condition andResults of Operations” sections contained in the prospectus conforming to ourRegistration Statement on Form S-4 and our quarterly report on Form 10-Q forthe quarter ended October 2, 2004.  Thisinformation was correctly reflected in the respective consolidated financialstatements contained in our Registration Statement on Form S-4 and ourquarterly report on Form 10-Q, as well as in this annual report on Form10-K.  Accordingly, no changes to any ofthe financial statements contained therein or the notes thereto wererequired.  We do not believe that thediscrepancies are material, either individually or in the aggregate.

 

30

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**InternalControls Documenting and Testing**

 

We are subjectto the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or “Section404,” for the fiscal year ending December 31, 2006.  We plan to begin documenting and testing ourinternal controls in the second quarter of 2005 in order to satisfy these requirementsfor fiscal year 2006.  During the courseof such documenting and testing, we may identify material weaknesses in ourinternal controls.  Our management willlikely be required to devote significant time and expense to remediate suchmaterial weaknesses, but may not be able to remediate such material weaknessesin a timely manner.  If we fail tomaintain the adequacy of our internal controls, our management may not be ableto conclude on an ongoing basis that we have effective internal controls overfinancial reporting in accordance with Section 404.  As a result, our independent auditors may beunable to express an opinion on our management’s evaluation on theeffectiveness of internal controls as required by Section 404 regarding ourmanagement’s report on internal controls. 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.

 

**Risk Factors**

 

Investorsshould carefully consider the following risks and the other information in thisreport and our other filings with the Securities and Exchange Commission, orthe “SEC,” before deciding to invest in our company or to maintain or increaseany investment.  The risks anduncertainties described below are not the only ones facing our company.  Additional risks and uncertainties may alsoadversely impact and impair our business. If any of the following risks actually occur, it could have a materialadverse effect on our business, results of operations, or financial conditionand the price of our company’s securities could decline and investors mightlose all or part of their investment.

 

**RisksRelated to Our Indebtedness**

 

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

 

We havesubstantial indebtedness.  As of December31, 2004, we had approximately $125.0 million of indebtedness.  Our high level of indebtedness could haveimportant consequences to you, including the following:

 

•                  ourability to obtain additional financing for working capital, capitalexpenditures, acquisitions or general corporate purposes may be impaired;

 

•                  wemust use a substantial portion of our cash flow from operations to pay intereston the exchange notes and, to the extent incurred, our other indebtedness,which will reduce the funds available to us for operations and other purposes;

 

•                  ourhigh level of indebtedness could place us at a competitive disadvantage comparedto our competitors that may have proportionately less debt;

 

•                  ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate may be limited; and

 

•                  ourhigh level of indebtedness makes us more vulnerable to economic downturns andadverse developments in our business.

 

We expect toobtain the money to pay our expenses and to pay the amounts due under the notesprimarily from our operations and borrowings under our credit facility.  Because we did not purchase certain workingcapital in the acquisition transactions, we were required to draw down amountsunder our working capital facility to provide funds for operations.  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 notgenerate sufficient cash flow from operations in the future and our currentlyanticipated growth in revenue and cash flow may not be realized, either or bothof which could result in our being unable to repay indebtedness, including theexchange notes, or to fund other liquidity needs.  If we are unable to fund our capital needs,we may be required to refinance all or part of our then existing debt on termsthat may not be advantageous to you, sell assets, reduce or delay 

 

31

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capitalinvestment or borrow more money.  Wecannot assure you that we will be able to accomplish any of these alternativeson terms acceptable to us, or at all. The terms of existing or future debt agreements may restrict us fromadopting any of these alternatives.  Inaddition, we cannot depend on additional capital contributions or otherinvestments from our stockholders and affiliates.  The failure to generate sufficient cash flowor to achieve any of these alternatives could materially adversely affect thevalue of the exchange notes and our ability to pay the amounts due under the exchangenotes.

 

***Despite our current indebtedness levels, wemay still be able to incur substantially more debt.  This could exacerbate further the risksassociated with our substantial leverage.***

* *

We may be ableto incur substantial additional indebtedness, including additional securedindebtedness, in the future.  The termsof the indenture governing the exchange notes restrict, but do not completelyprohibit, us from doing so.  Our creditfacility permits additional borrowings up to $25 million and all of thoseborrowings will rank equal in right of payment to the exchange notes andguarantees.  We may draw down additionalamounts under our credit facility to provide funds for operations.  If new debt is added to our current debtlevels, the related risks that we now face could intensify.  See “—Liquidity and Capital Resources—CreditFacility” above.

 

***Our ability to make payments under the notesand to service our other debt may depend on cash flow from our subsidiaries.***

* *

AlthoughWornick is an operating company, our subsidiaries hold material assets.  Consequently, we may depend on distributionsor other intercompany transfers from our subsidiaries to make payments underthe exchange notes and our other debt. In addition, distributions and intercompany transfers to us from oursubsidiaries will depend on:

 

•                  theirearnings;

 

•                  covenantscontained in our and their debt agreements, including the exchange notes andour credit facility;

 

•                  covenantscontained in other agreements to which we or our subsidiaries are or may becomesubject;

 

•                  businessand tax considerations; and

 

•                  applicablelaw, including laws regarding the payment of dividends and distributions andfraudulent transfer laws (as discussed below).

 

The operatingresults of our subsidiaries at any given time may not be sufficient to makedistributions or other payments to us or that any distributions and/or paymentswill be adequate to pay any amounts due under the notes or our otherindebtedness.

 

***The indenture governing the notes and ourcredit facility impose significant operating and financial restrictions, whichmay prevent us from pursuing certain business opportunities and taking certainactions.***

* *

The indenturegoverning the notes and our credit facility impose significant operating andfinancial restrictions on us.  Theserestrictions limit or prohibit, among other things, our ability to:

 

•                  incuradditional indebtedness;

 

•                  repayindebtedness prior to stated maturities;

 

•                  paydividends on or redeem or repurchase our stock;

 

•                  issuecapital stock;

 

•                  makeinvestments;

 

•                  createliens;

 

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•                  sellcertain assets or merge with or into other companies;

 

•                  enterinto certain transactions with stockholders and affiliates;

 

•                  sellstock in our subsidiaries;

 

•                  restrictdividends, distributions or other payments from our subsidiaries; and

 

•                  otherwiseconduct necessary corporate activities.

 

In addition,our credit facility also contains certain restrictions and notice provisionsrelating to changes in our senior management, and requires us to meet certainfinancial ratios and financial condition tests. You should read the discussions under the headings “—Liquidity andCapital Resources—Credit Facility” and “—Liquidity and Capital Resources—Notes”above for further information about these covenants.

 

Events beyondour control can affect our ability to meet these financial ratios and financialcondition tests and to comply with other provisions governing our creditfacility.  Our failure to comply withthese obligations could cause an event of default under our creditfacility.  If an event of default occursunder our credit facility, our lenders could elect to declare all amountsoutstanding and accrued and unpaid interest under our credit facility to beimmediately due, and the lenders thereafter could foreclose upon the assetssecuring our credit facility.  An eventof default under our credit facility could result in an event of default underour other debt instruments, including the notes.  In that event, we may not have sufficientassets to repay all of our obligations, including the notes.  We may incur other indebtedness in the futurethat may contain financial or other covenants more restrictive than thoseapplicable to our credit facility or the indenture governing the notes and onother unfavorable terms.

 

***To service our indebtedness, we will requirea significant amount of cash, and our ability to generate cash depends on manyfactors beyond our control.***

 

Our principalsources of liquidity are cash flow generated from operations and borrowingsunder 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 acertain extent, is subject to general economic, financial, competitive,legislative, regulatory and other factors that are beyond our control.

 

Our businessmay not generate cash flow from operations, that currently anticipated costsavings and operating improvements may not be realized on schedule and thatfuture borrowings may not be available to us under our credit facility in anamount sufficient to enable us to pay our indebtedness, including the exchangenotes, and to fund our other liquidity needs. If we are not able to generate sufficient cash flow or borrow under ourcredit facility to provide funds for operations, we may need to refinance orrestructure all or a portion of our indebtedness, including the notes, on orbefore maturity, sell assets, reduce or delay capital investments or seek toraise additional capital.  We may not beable to implement one or more of these alternatives, on terms acceptable to usor at all.  The terms of existing orfuture debt agreements may restrict us from adopting any of thesealternatives.  In addition, we cannotdepend on additional capital contributions or other investments from ourstockholders and affiliates.  The failureto generate sufficient cash flow or to successfully achieve any of thesealternatives could materially adversely affect the value of the exchange notesand our ability to pay the amounts due under the exchange notes.

 

**RisksRelated to Our Business**

 

***We rely on sales to U.S. Governmententities.  A loss of our contracts withthe U.S. Government or a reduction of sales under those contracts would have amaterial adverse effect on our business.***

 

Our sales arepredominantly derived from three contracts with the DSCP, which is responsiblefor the procurement of military field rations for the DoD.  Approximately 89.4% and 82.6% of our salesfor the years ended December 31, 2003 and December 31, 2004, respectively,were made directly or indirectly to the U.S. Government.  Approximately 42.5%, 39.9% and 6.1% of oursales for the year ended December 31, 2003 and approximately 54.1%, 23.7%and 3.7% of our sales for the year ended December 31, 2004 were derived fromour MRE program contract, UGR-A program 

 

33

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contract andTray-Pack program contract, respectively. The loss of all or a substantial portion of our sales to the U.S.Government would have a material adverse effect on our results of operationsand cash flow.

 

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

* *

We are subjectto business risks peculiar to the defense industry, including the ability ofthe U.S. Government to unilaterally:

 

•                  suspendus from receiving new contracts pending resolution of alleged violations ofprocurement laws or regulations;

 

•                  terminateexisting contracts;

 

•                  reducethe value of existing contracts through partial termination; and

 

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

 

All of ourU.S. Government contracts can be terminated by the U.S. Government either forits convenience or if we default under the contract.  Termination for convenience provisionsprovide only for our recovery of costs incurred or committed, settlementexpenses and profit on the work completed prior to termination.  Under termination for default provisions, thecontractor is liable for excess costs incurred by the U.S. Government inprocuring undelivered items from another source.

 

The U.S.Government periodically reviews our performance on its contracts and, at itsdiscretion, may audit the costs incurred by us with respect to itscontracts.  Based on the results of suchaudits, the U.S. Government may adjust our contract-related costs and fees,including allocated indirect costs.  Inaddition, under U.S. Government purchasing regulations, some of our costs,including most financing costs, amortization of goodwill, portions of researchand development costs and certain marketing expenses, may not bereimbursable.  Further, as a U.S.Government contractor, we are subject to investigation, legal action andliabilities that would not apply if we were contracting with a non-governmentalpurchaser.

 

***Our strategy depends on continued outsourcingby our government and commercial customers.***

 

Our strategyto increase sales depends in part on the continued outsourcing of products andprograms by the U.S. Government and our commercial customers.  If the U.S. Government or our commercialcustomers decide to stop outsourcing products and programs or if theydiscontinue products and programs that they are currently outsourcing, it wouldhave a material adverse effect on our results of operations and financialcondition.

 

***A reduction in the U.S. defense budget or achange in our relationship with the U.S. Government could have a materialadverse effect on our business.***

* *

The funding ofdefense programs competes with non-defense spending by the U.S.Government.  Budget decisions made by theU.S. Government are outside of our control and have long-term consequences forour business.  A substantial shift ingovernment defense spending to programs in which we are not involved or amaterial reduction in U.S. Government defense spending generally would have amaterial adverse effect on our results of operations and financial condition.

 

In addition,any significant disruption or deterioration of our relationship with the U.S.Government would significantly reduce our revenue.  Our competitors continuously engage inefforts to expand their business relationships with the U.S. Government to ourdetriment and are likely to continue their efforts in the future.

 

***Government contracts are subject tocompetitive bidding.  If we are unable tosuccessfully compete in the bidding process or if we fail to receive renewal orfollow-on contracts, our results of operations will suffer.***

* *

We obtain manyof our U.S. Government contracts through sealed competitive bids, unless anexemption from full and open competition under federal procurement laws isapplicable.  Under the regulationsgoverning sealed bidding, the 

 

34

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qualifiedbidder with the lowest price and the price-related factors most advantageous tothe U.S. Government is generally awarded the contract.  We may not win competitively awarded contractsand awarded contracts we do win may not be profitable.  We are also subject to risks associated withthe substantial time and effort required to prepare bids and proposals forcompetitively awarded contracts that may not be awarded to us.  In addition, our bids for the MRE contracthave not been subject to full and open competition and have been limited to usand two other suppliers.  Our ability tocontinue to win a significant share of the MRE program award could suffer ifthe bids were subject to full and open competition.

 

Renewal andfollow-on contracts are important because our contracts are for fixedterms.  These terms vary from shorterthan one year to over five years, particularly for contracts with options.  The typical term of our contracts with theU.S. Government is between one and three years. The loss of revenues from our possible failure to obtain renewal orfollow-on contracts may be significant because our U.S. Government contractsaccount for a substantial portion of our revenues.

 

***Our fixed-price contracts could subject us tolosses in the event that we have cost overruns.***

* *

Approximately59% and 50% of our net sales for the years ended December 31, 2004 andDecember 31, 2003, respectively, were generated through fixed-price contractswith the U.S. Government.  In a fixed-pricecontract, the price is not subject to adjustment based on cost incurred toperform the required work under the contract. Therefore, we fully absorb cost overruns on fixed-price contracts,thereby reducing our profit margin.  Costoverruns may result in a loss.  Furtherrisks associated with fixed-price contracts include the difficulty ofestimating costs that are related to performance in accordance with contractspecifications and the possibility of obsolescence in connection with long-termprocurements.  We may not be able toaccurately estimate the costs of the ingredients that we use to manufacture ourproducts, as well as the materials we use to process and package our products,because their prices have been, and we expect them to continue to be, subjectto volatility.  Also, any failure toanticipate technical problems, estimate costs accurately or control costsduring performance of a contract can reduce our profitability.  Under fixed-price contracts, we may not beable to pass price and cost increases on to our customers, which could have anadverse effect on our financial results.

 

***Our operating results depend on the U.S.Government’s demand for our food products and that demand can fluctuatesignificantly.  Such fluctuations indemand may have a material adverse effect on our results of operations andfinancial condition.***

* *

Our results ofoperations have fluctuated in the past and may continue to fluctuate in thefuture as a result of a number of factors, many of which are beyond ourcontrol.  These factors may include:

 

•                  thetermination of key U.S. Government contracts;

 

•                  thesize and timing of new contract awards to replace completed or expiredcontracts; and

 

•                  changesin U.S. Department of Defense policies and budgetary priorities.

 

In particular,there has been an increase in demand for our military food products associatedwith U.S. military operations since September 11, 2001.  Our net sales and net income increasedbeginning in the fourth quarter of 2002 and continued through 2004 as a resultof the significant increase in military demand due to U.S. operations in Iraqand ongoing operations in Afghanistan.

 

During 2004,orders for our military food products significantly decreased relative to comparableperiods in 2003.  As a result, our netsales and net income for the year ended December 31, 2004 were materiallylower than for the year ended December 31, 2003.  We believe that the demand for our militaryfood products will remain strong due to continued elevated levels of deploymentof U.S. armed forces in Afghanistan and Iraq and high levels of U.S. militaryactivity worldwide.  However, demand maynot remain at current levels and fluctuations in the military’s demand for ourfood products may have a material adverse effect on our results of operationsor financial condition.

 

Under ourcontracts with the DSCP, we may be required to increase our production tospecified agreed maximum levels in times of military surge demand.  We have taken significant measures to ensurethat such activity will not require us to curtail any of our commercialoperations.  Periods of military surgeproduction may have an adverse effect on our commercial production during such periods,which could materially harm our relationships with our commercial customers.

 

35

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***Our backlog is subject to reduction andcancellation.***

 

Backlogrepresents products or services that our customers have committed by contractto purchase from us and for which we have firm orders.  A large portion of these commitments isterminable by the customer at will.  Ourtotal backlog as of December 31, 2004 was $92.2 million.  As of December 31, 2004, 96.3% and 3.7% ofour backlog was derived from our contracts with the DSCP and our commercialcontracts, respectively.  Backlog issubject to fluctuations and is not necessarily indicative of future sales.  Moreover, cancellations of purchase orders orreductions of product quantities in existing contracts could substantially andmaterially reduce backlog and, consequently, future revenues.  Our failure to replace canceled or reducedbacklog could result in lower revenues.

 

***We have no redundant productionfacilities.  Therefore, the loss of oneof our facilities would materially adversely affect our production capability.***

* *

Each of ourdiscrete manufacturing operations occurs at one of two facilities with nooperating redundancy between the facilities. In particular, virtually all of our thermostabilization processing isconducted at our Cincinnati facility. Our leases for these sites expire in 2010.  We may lose production capability if anatural or other disaster were to occur that affected one of our significantfacilities or if we were unable to renew an expired lease for any suchfacility.  The loss of eithermanufacturing facility would materially adversely affect our productioncapacity and could have a material adverse effect on our results of operationsor financial condition.

 

***Governmental regulation may have a negativeimpact on our business.***

* *

Our operationsand properties are subject to regulation by various government entities andagencies.  As a producer of foodproducts, our operations are subject to production, packaging, quality,labeling and distribution standards.  Ourmanufacturing, processing and distribution facilities are also subject tovarious workplace regulations.  Webelieve that our current compliance programs adequately address such concernsand that we are in substantial compliance with applicable laws andregulations.  However, compliance with,or any violation of, current and future laws or regulations could requirematerial expenditures or otherwise adversely affect our business and financialresults.

 

***Product recalls could have a material adverseeffect on our business.***

* *

Manufacturers,processors and distributors of products in the food industry are sometimessubject to the recall of their products for a variety of reasons, including forproduct defects, such as ingredient contamination, packaging safety andinadequate labeling disclosure.  If anyof our products are recalled due to a product defect or for any other reason,we could be required to incur the expense of the recall or the expense of anyresulting legal proceeding.  Additionally,if one of our significant products were subject to recall, the image of thatbrand and our company could be harmed, which could have a material adverseeffect on our business.

 

***Food-borne illness incidents could reduce oursales.***

* *

Our internalcontrols and training may not be fully effective in preventing all food-borneillnesses.  Some food borne illnessincidents could be caused by third-party food suppliers and transportersoutside of our control.  New pathogensresistant to our current precautions may develop in the future, or diseaseswith long incubation periods could arise, that could give rise to claims orallegations on a retroactive basis.  Oneor more instances of food-borne illness in one of our products could negativelyaffect our product sales, especially if highly publicized, even if it werelater determined that the illness was wrongly attributed to one of ourproducts.

 

36

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***Product liability claims could have amaterial adverse effect on our business.***

* *

We face aninherent risk of exposure to product liability claims if any of the products wesell cause injury or illness.  We haveobtained liability insurance for product liability claims.  Insurance may not continue to be available ata reasonable cost, and any insurance that we obtain may not be adequate tofully cover product liability claims against us.  We generally obtain contractualindemnification from parties supplying our products, but this form ofindemnification is limited, as a practical matter, to the creditworthiness andfinancial resources of the indemnifying party. If we do not have 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 has low profit margins and issensitive to national and regional economic conditions and other factors.***

* *

Thefoodservice industry is characterized by relatively low profit margins.  The prices at which we sell some of ourproducts change with the cost of the underlying products.  As a result, our profit levels may be reducedduring periods of decreased prices for some of our products, even though ourgross profit percentage on those products may remain relatively constant.  A reduction in the price of our productscould have a material adverse effect on our business, operating results andfinancial condition.  The foodservicedistribution industry is sensitive to national and regional economicconditions.  Economic downturns mayreduce consumer spending at the businesses and institutions that wesupply.  This reduction in spending couldhave an adverse impact on the demand for our commercial food products andresult in a material adverse effect on our operating results.

 

Our operatingresults also are particularly sensitive to, and may be adversely affected by,difficulty in collecting accounts receivable, maintaining inventory control,and responding to competitive price pressures, severe weather conditions andunexpected increases in fuel or other transportation-related costs.  We cannot assure you that one or more ofthese factors will not adversely affect future operating results.

 

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

 

TWC HoldingLLC owns 100% of our common stock.  As aresult, Veritas Capital Management, through TWC Holding LLC, is able to controlall matters presented to our stockholders for approval, including election andremoval of our directors and change of control transactions.  The Veritas Capital Fund II, L.P. controlsthe voting of the shares of our common stock held by TWC Holding LLC and, inturn, is controlled by Veritas Capital Management.  Veritas Capital Management, some members ofwhich are members of our board of directors, has significant influence on ouroverall operations and strategy.  Wecannot assure you that the interests of TWC Holding LLC, The Veritas Capital FundII, L.P., Veritas Capital Management or any of their affiliates will coincidewith the interests of the holders of our other securities.  To the extent that conflicts of interest mayarise, TWC Holding LLC, The Veritas Capital Fund II, L.P., Veritas CapitalManagement or any of their affiliates may resolve those conflicts in a manneradverse to us or to you or other holders of our securities.

 

***We depend on the services of key executivesand technical and other personnel, the loss of whom could materially harm ourbusiness or reduce our operational effectiveness.***

 

Some of oursenior executives are important to our success because they have beeninstrumental in setting our strategic direction, operating our business,identifying, recruiting and training key personnel, identifying opportunitiesand arranging necessary financing. Losing the services of any of these individuals could adversely affectour business until a suitable replacement could be found.  We believe that they could not quickly bereplaced with executives of equal experience and capabilities.  Our executives are not presently bound byemployment agreements with us.  We do notmaintain key person life insurance policies on any of our executives.  See “Directors and Executive Officers of the Registrant.”

 

There is acontinuing demand for qualified technical personnel, and we believe that ourfuture growth and success will depend upon our ability to attract, train andretain 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 currently experience relativelylow rates of turnover for our technical personnel, the rate of turnover mayincrease 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 ormaintain a sufficient number of 

 

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technical ortemporary personnel could have a material adverse effect on our contractperformance or on our ability to capitalize on market opportunities.

 

***Our failure to enforce and maintain ourtrademarks could adversely affect our ability to establish and maintain brandawareness.***

* *

We haveregistered the names Homestyle Express®, Great Food ExpressÔand Asian Style SelectionsÔ and certain othernames used by our products as trademarks or service marks with the U.S. Patentand Trademark Office.  The success of ourbusiness strategy depends on our continued ability to use our existingtrademarks and service marks in order to increase brand awareness and furtherdevelop our branded products.  Themeasures we have taken to protect our intellectual property in the UnitedStates and foreign countries may not be adequate.  In addition, the laws of some foreigncountries do not protect intellectual property rights to the same extent as thelaws of the United States.  If ourefforts to protect our intellectual property are not adequate, or if any thirdparty misappropriates or infringes on our intellectual property, either inprint or on the Internet, the value of our brands may be harmed, which couldhave a material adverse effect on our business, including the failure of ourbrands and branded products to achieve and maintain market acceptance.

 

***Environmental laws and regulations maysubject us to significant costs and liabilities.***

* *

Our operationsinclude (and those of past operators at our sites have included) the use,generation and disposal of hazardous materials. 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 substantial costs, including cleanup costs, civil orcriminal fines or sanctions and third-party claims for property damage orpersonal injury, as a result of violations of or liabilities underenvironmental laws and regulations or the non-compliance with the environmentalpermits required at our facilities.

 

These laws,regulations and permits also could require the installation of costly pollutioncontrol equipment or operational changes to limit pollution emissions ordecrease the likelihood of accidental releases 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 7A:**                         Quantitativeand Qualitative Disclosures About Market Risk

###  

We are exposedto market risk, primarily from the impact of interest rate changes on our useof variable rate debt.  Our exposure tomarket risks from foreign currency and commodity price fluctuations is limitedsince most of our purchases and sales are denominated in U.S. dollars and rawcommodities do not comprise a significant percentage of our costs.  Our sales to the Canadian military comprisedapproximately 1% of our sales in 2004, on a pro forma basis, and we anticipateentering into, from time to time, foreign currency forward contracts and otherhedges to manage our exposure to fluctuations in foreign currency exchangerates for the Canadian dollar, the impact of which is not significant.  Other than with respect to our sales to theCanadian military, we generally do not have exposure to foreign currencyrisk.  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.  Other than with respect to oursales to the Canadian military, we do not hedge our exposure to foreigncurrency or commodity price risk.  We do nothold any derivatives for trading or speculative purposes.  Changes in the fair value of derivatives arerecorded in current earnings along with the change in the fair value of theunderlying hedged item.

 

All of ouroutstanding bank debt bears interest at variable interest rates tied to theprime 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 December31, 2004, no amounts were outstanding under our working capital facility.  If the average outstanding amount under ourworking capital facility were $25 million over a one-year period, a 50 basispoint increase in the prime interest rate would result in increased annual interestexpense of $125,000.

 

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

 

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

 

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

##  

None.

 

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

 

Management,including our principal executive officer and principal financial officer, hasevaluated, as of the end of the period covered by this report, theeffectiveness of the design and operation of our disclosure controls andprocedures with respect to the information generated for use in thisreport.  Based upon, and as of the dateof that evaluation, our principal executive officer and principal financialofficer concluded that the disclosure controls and procedures were effective toprovide reasonable assurances that information required to be disclosed in thereports filed or submitted under the Securities Exchange Act of 1934, asamended, is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms.

 

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

 

There havebeen no changes in our internal control over financial reporting that occurredduring our most recent fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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

 

None.

 

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**PARTIII.**

 

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

 

The followingtable sets forth the directors and executive officers of The Wornick Companyand their ages as of March 31, 2005. 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                          |       | 50      |       | Chairman and Director                                            |       |
|                                      |       |    |       |                                                             |       |
| Michael M. Thompson                       |       | 58      |       | President, Chief Executive Officer and Director                  |       |
|                                      |       |    |       |                                                             |       |
| Jon P. Geisler                            |       | 40      |       | President and Chief Executive Officer of Prepared Foods Division |       |
|                                      |       |    |       |                                                             |       |
| Humberto “Sonny” Cavazos        |       | 65      |       | President and Chief Executive Officer of Right Away Division     |       |
|                                      |       |    |       |                                                             |       |
| John F. McQuay                            |       | 56      |       | Chief Financial Officer and Treasurer                            |       |
|                                      |       |    |       |                                                             |       |
| Thomas J. Campbell                        |       | 46      |       | Secretary and Director                                           |       |
|                                      |       |    |       |                                                             |       |
| General Barry R. McCaffrey (USA Ret.)     |       | 62      |       | Director                                                         |       |
|                                      |       |    |       |                                                             |       |
| Admiral Joseph W. Prueher (USN Ret.)      |       | 62      |       | Director                                                         |       |
|                                      |       |    |       |                                                             |       |
| Admiral Leighton W. Smith, Jr. (USN Ret.) |       | 65      |       | Director                                                         |       |
|                                      |       |    |       |                                                             |       |
| Ramzi M. Musallam                         |       | 36      |       | Director                                                         |       |

 

**Robert B. McKeon, *Chairman and Director. ***Mr. McKeonhas been the Chairman of our board of directors and a member of ourcompensation committee, corporate governance and nominating committee andexecutive committee since June 2004. Mr. McKeon is the President of Veritas Capital, a New York-basedequity investment firm he founded in 1992. Mr. McKeon is on the Board of Trustees of Fordham University andthe Board of Fellows of Trinity College. Mr. McKeon is also a member of the Council on Foreign Relations and amember of the boards of directors of several private companies.  Mr. McKeon holds a bachelor’s degreefrom Fordham University and a master’s degree in business administration fromHarvard Business School.

 

**MichaelM. Thompson, *President, Chief ExecutiveOfficer and Director.***  Mr. Thompson has been serving as ourPresident and Chief Executive Officer since December 8, 2004.  He most recently served as President andChief Executive Officer of Trak Communications, Inc., a microwave component andsub-system manufacturer for commercial wireless, satellite communication anddefense applications, from October 2001 to May 2004.  Mr. Thompson was an officer of Trak fromSeptember 2000 to October 2001.  Prior tojoining Trak, from 1997 to 1999, Mr. Thompson headed the fibers and compositesbusiness unit of SGL Carbon AG, a manufacturer of mechanical/compositeassemblies, composite structures and carbon fiber for commercial and aerospacemarkets.  From 1967 to 1972, Mr. Thompsonserved as an aviator in the U.S. Marine Corps, with distinguished combatservice in the Republic of Vietnam, and was honorably discharged with the rankof Captain.  Mr. Thompson holds abachelor of science in mechanical engineering from Utah State University andpursued graduate studies in operations research and finance at Idaho StateUniversity.

 

**JonP. Geisler, *President and Chief ExecutiveOfficer—Prepared Foods Division.***  Mr. Geisler currently serves asPresident and Chief Executive Officer of our Prepared Foods Division.  He joined our quality assurance department inAugust 1985 and has worked in every operational aspect of MRE production,including as Vice President of Operations, Operations Manager, ProductionManager, Production Supervisor, Process Engineer and Quality Control Manager.  He most recently served as Executive VicePresident and Chief Operating Officer of the Prepared Foods Division.  Mr. Geisler’s current responsibilitiesinclude oversight of operations, quality assurance, technical services andengineering.  He holds a Bachelor ofScience degree in Engineering Management from the University of Evansville.

 

**Humberto“Sonny” Cavazos, *President and ChiefExecutive Officer—Right Away Division.***  Mr. Cavazos has served as the 

President andChief Executive Officer of our Right Away Division since October 2004.  He previously served as the 

 

40

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Executive VicePresident and Chief Operating Officer of the Right Away Division for four yearsand has been with The Wornick Company in many other capacities since 1980.  Prior to joining us, Mr. Cavazos heldvarious management positions in the food industry with companies such as PatioMexican Foods and Dentler FAC. Mr. Cavazos holds a Bachelor of Business Administration inIndustrial Management from the University of Texas at San Antonio, as well asan Associate’s Degree from San Antonio Community College.

 

**JohnF. McQuay, *Chief Financial Officer andTreasurer.*** Mr. McQuay has been with us since August 1987 and currentlyserves as our Chief Financial Officer and Treasurer.  Before his current post, he was the VicePresident of Finance of our Prepared Foods Division and also served as theChief Financial Officer and interim President of our former Shelf Stable FoodsDivision.  Prior to joining us,Mr. McQuay held the positions of Chief Financial Officer with IndianSummer Inc., a multi-facility, multi-state processor of juices andvinegars, and Auditor/MAS Consultant with the CPA firm George S.  Olive and Company.  He also served as a Lieutenant with the U.S.Air Force Auditor General’s office. Mr. McQuay is a Certified Public Accountant and holds a Bachelor ofScience degree in accounting from Indiana State University.

 

**ThomasJ. 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 sinceJune 2004.  Mr. Campbell is apartner at Veritas Capital, which he has been associated with since 1992.  He is also a member of the boards ofdirectors of several private companies. Mr. Campbell holds a bachelor’s degree in accounting and financefrom Lehigh University.

 

**GeneralBarry R. McCaffrey (USA Ret.), *Director.***  General McCaffrey has been a member of ourboard of directors and a member of our audit committee sinceJune 2004.  Gen. McCaffrey wasDirector, 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 served overseas for 13 years,including service as Commander-in-Chief, U.S. Southern Command from 1994 to1996.  Gen. McCaffrey is the president ofa private consulting firm and a member of the boards of directors of severalprivate companies.  Gen. McCaffrey holdsa bachelor’s degree in general engineering from the U.S. Military Academy andholds a master’s degree in civil government from American University.

 

**AdmiralJoseph W. Prueher (USN Ret.), *Director.***  Admiral Prueher has been a member of ourboard of directors and a member of our audit committee and corporate governanceand nominating committee since June 2004. Admiral Prueher served as U.S. Ambassador to the People’s Republic ofChina from November 1999 to May 2001. His diplomatic post followed a 35-year career in the U.S. Navy, where heserved as Commander-in-Chief, U.S. Pacific Command from January 1996 toFebruary 1999.  From 1989 through1995, Admiral Prueher served as Commandant of Midshipmen at the U.S. NavalAcademy at Annapolis, Maryland, Commander of Carrier Battle Group ONE based inSan Diego, California, Commander of the U.S. Mediterranean Sixth Fleet and ofNATO Striking Forces, and as Vice Chief of Naval Operations in the Pentagon.  He is a member of the boards of directors ofMerrill Lynch & Co., Inc., New York Life Insurance Company andEmerson Electric Co.  Admiral Prueherholds a bachelor’s degree in naval science from the U.S. Naval Academy and amaster’s degree in international relations from George Washington University.

 

**AdmiralLeighton 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.  Admiral Smith was appointed to the four-starrank in April 1994, became Commander-in-Chief, Allied Forces SouthernEurope and concurrently assumed the command of the NATO-led ImplementationForce in Bosnia in December 1995. Admiral Smith retired from the U.S. Navy after 34 years of servicein October 1996.  Admiral Smithserves as a Senior Fellow at the Center for Naval Analysis, a Senior Advisor atthe U.S. Naval Institute and President of Leighton Smith Associates.  He is currently a member of the board ofdirectors of CAE USA Inc. and has been a member of the board of directorsof Vanguard Airlines, Inc., an aviation company, since August 1998.  Admiral Smith is a graduate of the U.S. NavalAcademy.

 

**RamziM. 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 sinceJune 2004.  Mr. Musallam is apartner of Veritas Capital, with which he has been associated with since 1997.  He is also a member of the boards ofdirectors of several private companies. Mr. Musallam holds a bachelor’s degree from Colgate University witha double major in economics and mathematics and a master’s degree in businessadministration from the University of Chicago Graduate School of Business.

 

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**AuditCommittee Financial Expert**

 

As presentlyconstituted, the audit committee of our board of directors does not have amember that is a “financial expert,” as such term is defined in Item 401(h) ofRegulation S-K promulgated by the SEC. Several members of our audit committee currently serve or have served asmembers of audit committees of the boards of directors of other reportingcompanies.  Our board of directors hasdetermined that while none of the audit committee members meets all of thecriteria established by the SEC to be classified as a “financial expert,” themembers of our audit committee have sufficient understanding of audit committeefunctions, internal control over financial reporting and financial statementevaluation so as to capably perform the tasks required of the auditcommittee.  Accordingly, our board ofdirectors believes that the additional expense and effort necessary to add anindividual to our board of directors and its audit committee solely for thepurpose of satisfying the criteria of a “financial expert” is unwarranted giventhe size of our operations and complexity of our financial statements.

 

**Code ofEthics**

 

We haveadopted a code of ethics that applies to our principal executive officer,principal financial officer or controller, and to other persons performingsimilar functions.  Our code of ethics isattached as an exhibit to this report and is also available on our internetwebsite at http://www.wornick.com****onour “about us” page.

 

## **Item 11:**                           ExecutiveCompensation

 

The followingtable summarizes compensation awarded or paid by us during 2004****to our President and Chief ExecutiveOfficer and our other executive officers. The compensation amounts in the following table for Messrs.  Rose, Geisler, Cavazos, Frase and McQuayreflect compensation paid by the predecessor company on or prior to June 30,2004.  Only one year of compensationinformation has been provided in the table as we were not a reporting companyat any time during the last three fiscal years.

 

**Summary Compensation Table**

 
| ** **                                                       | ** ** | ** **       | ** ** | ** **              | ** ** | **Long-Term  Compensation** | ** ** | ** **     | ** ** |
|------------------------------------------------------------------|------------|------------------|------------|-------------------------|------------|-----------------------------|------------|----------------|------------|
| ** **                                                       | ** ** | **For the Year** | ** ** | ** **              | ** ** | **Stock Options and**       | ** ** | ** **     | ** ** |
| ** **                                                       | ** ** | **Ended**        | ** ** | **Annual Compensation** | ** ** | **Restricted Stock**        | ** ** | **All Other**  | ** ** |
| **Name and Principal Position**                                  | ** ** | **December 31**  | ** ** | **Salary**              | ** ** | **Bonus**                   | ** ** | **Awards (1)** | ** ** | **Compensation (2)** | ** ** |
| **(dollars in thousands)**                                       | ** ** | ** **       | ** ** | ** **              | ** ** | ** **                  | ** ** | ** **     | ** ** | ** ** | ** ** |
| Michael M. Thompson (3)                                          |       | 2004             |       | $                       | 25         |                        | $          | —         |       | $ | — |   | $ | — |   |
| President and Chief Executive  Officer                           |       |             |       |                    |       |                        |       |           |       |   |   |
|                                                             |       |             |       |                    |       |                        |       |           |       |   |   |
| Larry L. Rose (4)                                                |       | 2004             |       | $                       | 420        |                        | $          | 549            |       | $ | 49 |   | $ | 7 |   |
| Former President and Chief  Executive Officer                    |       |             |       |                    |       |                        |       |           |       |   |   |
|                                                             |       |             |       |                    |       |                        |       |           |       |   |   |
| Jon P. Geisler                                                   |       | 2004             |       | $                       | 233        |                        | $          | 124            |       | $ | 29 |   | $ | 5 |   |
| President and Chief Executive Officer of Prepared Foods Division |       |             |       |                    |       |                        |       |           |       |   |   |
|                                                             |       |             |       |                    |       |                        |       |           |       |   |   |
| Humberto “Sonny” Cavazos (5)                           |       | 2004             |       | $                       | 224        |                        | $          | 135            |       | $ | 10 |   | $ | 4 |   |
| President and Chief Executive Officer of Right Away Division     |       |             |       |                    |       |                        |       |           |       |   |   |
|                                                             |       |             |       |                    |       |                        |       |           |       |   |   |
| Keith E. Frase (6)                                               |       | 2004             |       | $                       | 242        |                        | $          | 188            |       | $ | 29 |   | $ | 9 |   |
| President and Chief Executive Officer of Right Away Division     |       |             |       |                    |       |                        |       |           |       |   |   |
|                                                             |       |             |       |                    |       |                        |       |           |       |   |   |
| John F. McQuay                                                   |       | 2004             |       | $                       | 174        |                        | $          | 205            |       | $ | — |   | $ | 8 |   |
| Chief Financial Officer and Treasurer                            |       |             |       |                    |       |                        |       |           |       |   |   |

 

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(1)                                  During fiscal year2004, TWC Holding LLC, our parent, granted awards of Class B interests, asdescribed below in more detail in “—Option Plan” below and Item 12, “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.”  These awards were valued atthe time of their grants as follows: Larry L. Rose, a 2.5% interest valued atapproximately $488 thousand (forfeited upon resignation); Jon P. Geisler, a1.5% interest valued at approximately $293 thousand; Humberto “Sonny” Cavazos,a 0.5% interest valued at 

 

42

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                                                approximately$98 thousand; and Keith E. Frase, a 1.5% interest valued at approximately $293thousand (forfeited upon resignation). These awarded interests are subject to a five-year vesting schedule andwere deemed to have vested 10% for the six months ended December 31, 2004for the purposes of the above table.

 

(2)                                  Reflects matchingemployer contributions to our 401(k) plan, life insurance premiums paid by uson behalf of these executives and other miscellaneous compensation.

 

(3)                                  Mr. Thompson wasappointed the President and Chief Executive Officer of The Wornick Company inDecember 2004 and his compensation amounts reflect his compensation fromDecember 2004, at an annual base salary of $325,000.

 

(4)           Mr. Rose resignedfrom his position with us in December 2004.

 

(5)                                  Mr. Cavazos wasappointed the President and Chief Executive Officer of Right Away Division inOctober 2004 and served as the Executive Vice President and Chief OperatingOfficer of Right Away Division during 2003.

 

(6)           Mr. Fraseresigned from his position with us in October 2004.

 

**OptionPlan**

 

We have nostock option plan.  Members of ourmanagement and outside directors participate in our profits through a plan thatgrants them Class B interests in TWC Holding LLC, our parent.  Pursuant to the terms of the operatingagreement governing TWC Holding LLC, the holders of Class B interests mayreceive up to approximately 7.9%, in the aggregate, of all distributions madeby TWC Holding LLC after the holders of the Class A interests in TWCHolding LLC 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 currently outstanding Class B interests entitle the holders thereofto receive approximately 3.9%, in the aggregate, of all such distributions madeby TWC Holding LLC.  The Class Binterests are subject to a five-year vesting schedule with any unvestedinterests reverting to the holders of Class A interests in the event theyare forfeited or repurchased.

 

**IncentiveCompensation Plan**

 

Members of ourmanagement are eligible to participate in our incentive compensation planbeginning in 2005, which provides bonuses for certain key executives if weachieve certain performance targets set by our Board of Directors.  Under the incentive plan, participantsgenerally are eligible to receive an award based on a percentage of basesalary.

 

**401(k)Plan**

 

We sponsor adefined contribution plan, or 401(k) Plan, intended to qualify underSection 401 of the Internal Revenue Code of 1986, as amended, or theCode.  Substantially all of our employeesare eligible 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 make pre-tax contributions from1% to 50% of their eligible compensation, but not to exceed the limitsprescribed under the Code.  Employees maydirect their investments among various pre-selected investment alternatives.  Employee contributions to our 401(k) Planvest 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.  Theemployer matching contributions for employees participating in our 401(k) Planalso vest immediately.

 

**EmploymentArrangements**

 

Our executivesare not presently bound by employment agreements with us and may resign or beterminated at any time.  We may in thefuture enter into employment or severance arrangements with our executives.

 

**CompensationCommittee Interlocks and Insider Participation**

 

Ourcompensation committee consists of Messrs. Campbell, McKeon and Musallam.  The compensation committee makes decisions onthe compensation of certain of our executive officers.  There are no compensation committeeinterlocks (i.e., none of our executive officers serves as a member of theboard of directors or the compensation committee of another entity that has anexecutive officer serving on our board of directors).

 

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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 as disclosed in Item 13.

 

**DirectorCompensation**

 

The threeoutside directors, General McCaffrey and Admirals Prueher and Smith, are eachpaid an annual fee of $35,000, an additional fee of $2,000 for each regularquarterly meeting of the board of directors that they attend and an additionalfee of $6,250 for each other meeting of the board of directors that theyattend.  Each of the outside directors isalso reimbursed for his travel, lodging and other expenses of attendingmeetings 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 no other fees paid to thesedirectors.  We do not maintain a medical,dental, or retirement benefits plan for these directors.  The remaining directors are employed eitherby us or Veritas Capital and are not separately compensated for their servicesas directors although they are reimbursed for expenses incurred in connectionwith attending board and committee meetings.

 

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

##  

We are awholly owned subsidiary of TWC Holding LLC, a Delaware limited liabilitycompany.

 

The followingtable sets forth the beneficial ownership of TWC Holding LLC as of March 31,2005 by (i) each person or entity known to us to own more than 5% of anyclass of TWC Holding LLC’s outstanding securities, (ii) each member of ourboard of directors and each of our named executive officers and (iii) allof the members of the board of directors and executive officers as a group.

 
| **Name  of Beneficial Owner****(1)**                                                    | ** ** | **Percent of   Class A  Interests****(2)(3)** | ** ** | **Class A  Interest  Distribution Participation****(2)(3)(4)** | ** ** | **Class B  Interest  Distribution  Participation****(2)(3)(4)** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| Veritas Capital Management II, L.L.C. (5)  660 Madison Avenue  New York, New York 10021 |       | 94.7                                          | %          | 91.0                                                           | %          | —                                                          |       |
| Robert B. McKeon (6)                                                                    |       | 94.7                                          |       | 91.0                                                           |       | —                                                          |       |
| Thomas J. Campbell (6)                                                                  |       | 94.7                                          |       | 91.0                                                           |       | —                                                          |       |
| Ramzi M. Musallam (6)                                                                   |       | 94.7                                          |       | 91.0                                                           |       | —                                                          |       |
| Michael M. Thompson (7)                                                                 |       | 0                                             |       | —                                                         |       | —                                                          |       |
| Larry L. Rose (8)                                                                       |       | 1.7                                           |       | 1.7                                                            |       | —                                                          |       |
| Jon P. Geisler                                                                          |       | 1.1                                           |       | 1.0                                                            |       | 1.5                                                             |       |
| Humberto “Sonny” Cavazos (9)                                                  |       | *                                             |       | *                                                              |       | *                                                               |       |
| John F. McQuay                                                                          |       | —                                        |       | —                                                         |       | —                                                          |       |
| General Barry R. McCaffrey (USA Ret.)                                                   |       | —                                        |       | —                                                         |       | *                                                               |       |
| Admiral Joseph W. Prueher (USN Ret.)                                                    |       | —                                        |       | —                                                         |       | *                                                               |       |
| Admiral Leighton W. Smith, Jr. (USN Ret.)                                               |       | —                                        |       | —                                                         |       | *                                                               |       |
| All executive officers and directors as a group  (11 persons) (10)                 |       | 97.8                                          | %          | 92.4                                                           | %          | 2.4                                                             | %          |

 

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*                             Less than 1%.

 

(1)                      Except as otherwise indicated,the address for each of the named security owners is 10825 Kenwood Road,Cincinnati, Ohio 45242.

 

(2)                      Beneficial ownership isdetermined in accordance with the rules of the SEC.

 

(3)                      TWC Holding LLC has two classesof membership interests, Class A interests and Class Binterests.  Certain members of ourmanagement and outside directors have received Class B interests.  Pursuant to the terms of the operating agreementgoverning TWC Holding LLC, the holders of Class B interests are entitledto receive up to approximately 7.9%, in the aggregate, of all distributionsmade by TWC Holding LLC after the holders of Class A interests in TWCHolding LLC have received a return of their invested capital, provided that theholders of the Class A interests have 

 

44

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                                    receivedan 8% per annum internal rate of return on their invested capital.  The Class B interests are subject to afive-year vesting schedule with any unvested interests reverting to the holdersof Class A interests.

 

(4)                      Represents the percentage ofdistributions by TWC Holding LLC to which the holder of interests would beentitled in respect of such holder’s Class A interests or Class Binterests, as applicable, assuming (i) full vesting of the Class Binterests and (ii) that holders of all Class A interests of TWCHolding LLC have received the stated returns on their invested capital.

 

(5)                      Veritas Capital Management II,L.L.C.’s interest in us is held indirectly through TWC Holding LLC.  The Veritas Capital Fund II, L.P., a Delawarelimited partnership of which Veritas Capital Management II, L.L.C. is thegeneral partner, is the manager of TWC Holding LLC.  The Veritas Capital Fund II, L.P. owns 94.7%of the Class A membership interests of TWC Holding LLC.  Through the provisions of the limitedliability company agreement governing TWC Holding LLC, The Veritas Capital FundII, L.P. controls the vote of all our shares held by TWC Holding LLC and isdeemed to own all our common stock held by TWC Holding LLC.  Interests in TWC Holding LLC are nottransferable without the consent of The Veritas Capital Fund II, L.P.

 

(6)                      Messrs. McKeon, Campbell andMusallam are principals of Veritas Capital Management.  Accordingly, they may be deemed to sharebeneficial ownership of the membership interests owned by Veritas CapitalManagement although they disclaim this beneficial ownership except to theextent of their pecuniary interest in Veritas Capital Management.

 

(7)                      Mr. Thompson was appointed as thePresident and Chief Executive Officer of The Wornick Company in December 2004.

 

(8)                      Mr. Rose resigned his positionwith us in December, 2004 and, as a result, forfeited his Class B interests.

 

(9)                      Mr. Cavazos was appointed thePresident and Chief Executive Officer of Right Away Division inOctober 2004 and served as the Executive Vice President and ChiefOperating Officer of Right Away Division during 2003.

 

(10)                Includes 94.7% of the Class Ainterests held by The Veritas Capital Fund II, L.P., beneficial ownership ofwhich may be deemed to be shared by Messrs. McKeon, Campbell and Musallam,as the principals of Veritas Capital Management.  Messrs. McKeon, Campbell and Musallamdisclaim this beneficial ownership except to the extent of their pecuniaryinterest in Veritas Capital Management.

 

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

 

Forinformation, see Item 11, “Option Plan,” for a discussion of the features ofthe plan we utilize to incentivize our management and outside directors.

 

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

##  

**EquityContribution**

 

Pursuant tothe Assets Purchase and Sale Contract, certain current and former members ofour management and other employees made an equity contribution to TWC HoldingLLC, which owns all of our common shares, in an aggregate amount of$2.0 million.  In return, suchpersons have received Class A membership interests in TWC HoldingLLC.  For more information, see Item 12, “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.

 

**TransactionFee**

 

In connectionwith the acquisition transaction, we paid a transaction fee of $3.0 million toVeritas Capital Management, an affiliate of The Veritas Capital Fund II, L.P.,out of the proceeds of the offering of the notes. This fee has been reflectedas part of the fees and expenses of the acquisition.

 

**ManagementFee**

 

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

 

45

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

##  

PricewaterhouseCoopersLLP has served as our independent registered public accounting firm since theconsummation of the acquisition transaction on June 30, 2004.  The following table sets forth the aggregatefees billed by PricewaterhouseCoopers for professional services during the sixmonths ended December 31, 2004 for professional services provided, as well asout-of-pocket costs incurred in connection with these services:

 

 

| ** **          | ** ** | **Six Months Ended  December 31, 2004** | ** ** |
|---------------------|------------|-----------------------------------------|------------|
| Audit Fees          |       | $                                       | 150,000    |   |
| Audit- Related Fees |       | 146,000                                 |       |
| Tax Fees            |       | 0                                       |       |
| All Other Fees      |       | 2,568                                   |       |
| Total               |       | $                                       | 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 include consultations inconnection with our acquisition of our business and advice on otheraccounting-related matters.  In fiscalyear 2004, these fees were primarily comprised of services for consultingrelated to accounting matters and due diligence and comfort letter servicesrelated to the acquisition transaction and related debt offerings.

 

*Tax Fees*.  There were no fees incurred in the six monthsended December 31, 2004 for professional services rendered related to taxcompliance, 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.

 

**AuditCommittee Pre-Approval**

 

Our auditcommittee has not established a policy to delegate authority to approve of anyaudit or permissible non-audit services. Our audit committee pre-approves, on an individual basis, all audit andpermissible non-audit services provided by the independent auditors.  These services may include audit services,audit-related services, tax services and other services.  Pre-approval is generally subject to aspecific budget, and the independent auditor will be required to provideback-up documentation to be provided to the audit committee regarding thespecific services or category of services to be provided.

 

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

 

**PARTIV.**

 

## **Item 15:**                           Exhibits,Financial Statement Schedules, and Reports on Form 8-K

 

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

 

A list offinancial statements required to be filed as part of this report is set forthin the Index to Consolidated Financial Statement, which immediately precedessuch financial statements, and is incorporated herein by reference.

 

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

 

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

 

**(a)(3)  Exhibits**

 

A list ofexhibits required to be filed as part of this report is set forth in theExhibit Index, which immediately precedes such exhibits, and is incorporatedherein by reference.

 

**(b)  Reports on Form 8-K**

 

Current Reporton Form 8-K filed December 1, 2004 containing a press release regardingextension of the expiration date for the exchange offer for our 10 7/8%Senior Secured Notes due 2011.

 

Current Reporton Form 8-K filed December 8, 2004 regarding the resignation of Larry L. Rosefrom our company and the appointment of Michael M. Thompson as our presidentand chief executive officer and as one of our directors and containing a pressrelease, and an amendment thereto on Form 8-K/A filed December 10, 2004.

 

Current Reporton Form 8-K filed December 23, 2004 disclosing certain materialnon-public financial information pursuant to Regulation FD previously disclosed on a confidential basis.

 

47

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**Signatures**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized, in the City of Cincinnati, State of Ohio.

 
|                      | THE WORNICK COMPANY |
|---------------------------|---------------------|
|                      |                |
|                      |                |
| Date: March 31, 2005 | By:                 | /s/ Michael M. Thompson |
|                      | Name:               | Michael M. Thompson |
|                      | Title:              | President, Chief Executive Officer and  Director  (Principal Executive Officer) |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed by the followingpersons in the capacities and on the dates indicated.

 
| **Signature**                         | ** ** | **Title**                                                                                      | ** ** | **Date**            |
|---------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------------|
|                                  |       |                                                                                           |       |                |
| /s/ Robert B. McKeon                  |       | Chairman of the Board of Directors                                                             |       | March 31, 2005 |
| Robert B. McKeon                      |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ Michael M. Thompson               |       | President, Chief Executive Officer and  Director (Principal Executive Officer)                 |       | March 31, 2005 |
| Michael M. Thompson                   |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ John F. McQuay                    |       | Chief Financial Officer and Treasurer  (Principal Financial and Principal  Accounting Officer) |       | March 31, 2005 |
| John F. McQuay                        |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ Thomas J. Campbell                |       | Secretary and Director                                                                         |       | March 31, 2005 |
| Thomas J. Campbell                    |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ Barry R. McCaffrey                |       | Director                                                                                       |       | March 31, 2005 |
| General Barry R. McCaffrey (USA Ret.) |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ Joseph W. Prueher                 |       | Director                                                                                       |       | March 31, 2005 |
| Admiral Joseph W. Prueher (USN Ret.)  |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ Leighton W. Smith                 |       | Director                                                                                       |       | March 31, 2005 |
| Admiral Leighton W. Smith (USN Ret.)  |       |                                                                                           |       |                |
|                                  |       |                                                                                           |       |                |
| /s/ Ramzi M. Musallam                 |       | Director                                                                                       |       | March 31, 2005 |
| Ramzi M. Musallam                     |       |                                                                                           |       |                |

 

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

 

No annualreport or proxy materials have been sent to any registrant’s security holders.

 

48

----

 

**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                                                                                                                                                             |
|     |       |                                                                                                                                                                                                                                                                                            |
| 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 Corp. |
|     |       |                                                                                                                                                                                                                                                                                            |
| 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                                                                                                                                                                             |

 

49

----

 
| **No.**   | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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                                                                                                                                                                                                                                                                                                                  |
|      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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.                                                                                                                                                                                                                                                                                                                      |
|      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 14.1 (*)  |       | 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)                                                                                                                                                                                                                                                                                                                                                               |

 

50

----

 
| **No.**  | ** ** | **Description**                                                                                                                                                            |
|----------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                                                                       |
| 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. |
|   |   |                                                                                                                                                                                                                                          |
| (*)    |   | Filed herewith.                                                                                                                                                                                                                               |

 

51

----

 

**The Wornick Company**

 
| ** **                                                                                                                                                                                                                                                                                       |   | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|
| **Reports of Independent  Registered Public Accounting Firms**                                                                                                                                                                                                                                   |   | F-2      |
| ** **                                                                                                                                                                                                                                                                                       |   |     |
| **Consolidated Financial Statements**                                                                                                                                                                                                                                                            |   |     |
|                                                                                                                                                                                                                                                                                             |   |     |
| Consolidated Balance  Sheets at December 31, 2003 (Predecessor) and 2004 (Successor)                                                                                                                                                                                                        |   | F-5      |
|                                                                                                                                                                                                                                                                                             |   |     |
| Consolidated  Statements of Operations (Predecessor) for the Years Ended December 31,  2002, 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                                |   | F-6      |
|                                                                                                                                                                                                                                                                                             |   |     |
| Consolidated  Statements of Changes in Stockholder’s Equity (Predecessor) for the Years  Ended December 31, 2002, 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 |   | F-7      |
|                                                                                                                                                                                                                                                                                             |   |     |
| Consolidated  Statements of Cash Flows (Predecessor) for the Years Ended December 31,  2002, 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                               |   | F-8      |
|                                                                                                                                                                                                                                                                                             |   |     |
| Notes to  Consolidated Financial Statements                                                                                                                                                                                                                                                      |   | F-9      |

 

F-1

----

 

**Report of Independent Registered Public AccountingFirm**

** **

To the Board of Directorsand Stockholders

of The Wornick Company, aDelaware Corporation

 

In our opinion, theaccompanying consolidated balance sheet and the related consolidated statementsof operations, of changes in stockholder’s equity and of cash flows presentfairly, in all material respects, the financial position of The Wornick Companyand its subsidiaries, a Delaware corporation (the “Successor”), at December 31,2004, and the results of their operations and their cash flows for the periodfrom July 1, 2004 through December 31, 2004, in conformity withaccounting principles generally accepted in the United States of America.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.  Weconducted our audit of these statements in accordance with the standards of thePublic Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

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

 

F-2

----

 

**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directorsand Stockholders

of The Wornick Company, aNevada Corporation

 

In our opinion, theaccompanying consolidated balance sheet and the related consolidated statementsof operations, of changes in stockholder’s equity and of cash flows presentfairly, in all material respects, the financial position of The Wornick Companyand its subsidiaries, a Nevada corporation (the “Predecessor”), at December 31,2003, and the results of their operations and their cash flows for the yearended December 31, 2003 and for the period from January 1, 2004through June 30, 2004, in conformity with accounting principles generallyaccepted in the United States of America. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.  We conducted our audit of these statements inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

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

 

F-3

----

 

**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directors and Stockholders of

The Wornick Company

 

We have audited theaccompanying statements of operations, of stockholder’s equity and of cashflows of The Wornick Company, a Nevada corporation, for the year ended December 31,2002.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatements.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the results of its operations and its cash flows for the year ended December 31,2002, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 
| /s/ The Hanke Group P.C.                                 |
|----------------------------------------------------------|
| San Antonio, Texas                                       |
| February 28, 2003,  except for Notes 11, 15 and 16, |
| for which the date is May 4,  2004                  |

 

F-4

----

 

**The Wornick Company**

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                          | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                          | ** ** | **2003**              | ** ** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                          | ** ** | **(Predecessor)**     | ** ** | ** ** | **(Successor)** | ** ** |
| **Assets**                                                                                                                                          |       |                  |       |   |   |   |
| Current assets                                                                                                                                      |       |                  |       |   |   |   |
| Cash and cash equivalents                                                                                                                           |       | $                     | 5,290,667  |   |   | $ | 3,289,030 |   |
| Investments                                                                                                                                         |       | 8,993,000             |       |   | — |   |
| Trade accounts receivable, net                                                                                                                      |       | 14,686,678            |       |   | 13,856,294 |   |
| Inventories                                                                                                                                         |       | 20,050,043            |       |   | 24,132,116 |   |
| Prepaid expenses and other current assets                                                                                                           |       | 1,086,400             |       |   | 531,106 |   |
| Notes receivable, current portion                                                                                                                   |       | 1,532,647             |       |   | — |   |
| Deferrede income taxes                                                                                                                              |       | —                |       |   | 269,998 |   |
| Total current assets                                                                                                                                |       | 51,639,435            |       |   | 42,078,544 |   |
|                                                                                                                                                |       |                  |       |   |   |   |
| Property and equipment, net                                                                                                                         |       | 21,717,606            |       |   | 32,794,239 |   |
| Goodwill                                                                                                                                            |       | 10,856,253            |       |   | 77,573,207 |   |
| Intangible assets, net                                                                                                                              |       | —                |       |   | 21,822,710 |   |
| Notes receivable, excluding current portion                                                                                                         |       | 1,102,527             |       |   | — |   |
| Other noncurrent assets                                                                                                                             |       | 1,392,876             |       |   | 5,675,939 |   |
| Total assets                                                                                                                                        |       | $                     | 86,708,697 |   |   | $ | 179,944,639 |   |
|                                                                                                                                                |       |                  |       |   |   |   |
| **Liabilities  and Stockholder’s Equity**                                                                                                      |       |                  |       |   |   |   |
| Current liabilities                                                                                                                                 |       |                  |       |   |   |   |
| Book overdraft                                                                                                                                      |       | $                     | 747,665    |   |   | $ | — |   |
| Current maturities of long-term debt                                                                                                                |       | 2,494,819             |       |   | — |   |
| Trade accounts payable                                                                                                                              |       | 2,241,206             |       |   | 6,167,826 |   |
| Accrued expenses                                                                                                                                    |       | 6,910,792             |       |   | 3,122,446 |   |
| Accrued interest                                                                                                                                    |       | —                |       |   | 6,796,875 |   |
| Taxes payable                                                                                                                                       |       | —                |       |   | 51,950 |   |
| Total current liabilities                                                                                                                           |       | 12,394,482            |       |   | 16,139,097 |   |
|                                                                                                                                                |       |                  |       |   |   |   |
| Accrued stock compensation                                                                                                                          |       | 13,827,478            |       |   | — |   |
| Accrued incentive compensation                                                                                                                      |       | 833,269               |       |   | — |   |
| Deferred income taxes                                                                                                                               |       | —                |       |   | 1,182,065 |   |
| Long-term debt                                                                                                                                      |       | 2,498,519             |       |   | 125,000,000 |   |
| Total liabilities                                                                                                                                   |       | 29,553,748            |       |   | 142,321,162 |   |
|                                                                                                                                                |       |                  |       |   |   |   |
| **Commitments  and Contingencies**                                                                                                                  |       |                  |       |   |   |   |
| Stockholder’s equity                                                                                                                           |       |                  |       |   |   |   |
| Common stock $0.01 par value; 10,000,000  shares authorized, 5,000,000 shares issued and outstanding (Predecessor)/ 1  share issued and outstanding |       | 50,000                |       |   | — |   |
| Additional paid-in capital                                                                                                                          |       | 33,637,668            |       |   | 37,646,400 |   |
| Unearned shares of Employee Stock Ownership  Trust                                                                                                  |       | (10,163,571           | )          |   | — |   |
| Retained earnings                                                                                                                                   |       | 33,630,852            |       |   | (22,923 | ) |
| Total stockholder’s equity                                                                                                                     |       | 57,154,949            |       |   | 37,623,477 |   |
| Total liabilities and stockholder’s equity                                                                                                     |       | $                     | 86,708,697 |   |   | $ | 179,944,639 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-5

----

 

**The Wornick Company**

**Consolidated Statements of Operations**

 
| ** **                                    | ** **  | **Predcessor** | ** **        | ** **            | **Successor** | ** **               |
|-----------------------------------------------|-------------|----------------|-------------------|-----------------------|---------------|--------------------------|
| ** **                                    | ** **  | ** **     | ** **        | ** **            | ** **    | **Period from**          | ** ** | ** ** | **Period from** | ** ** |
| ** **                                    | ** **  | ** **     | **January 1,**    | ** **            | ** **    | **July 1, 2004 to** |
| **Year Ended December 31,**                   | **2004 to** | ** **     | ** **        | **December 31,** |
| **2002**                                      | ** **  | **2003**       | **June 30, 2004** | ** **            | ** **    | **2004**                 |
| ** **                                    | ** **  | ** **     | ** **        | ** **            | ** **    | ** **               | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |        | $              | 130,434,108       |                  | $             | 318,370,159              |   | $ | 80,923,839 |   |   | $ | 100,380,764 |   |
| Cost of sales                                 |        | 108,417,725    |              | 265,447,298           |          | 67,752,882               |   |   | 83,307,805 |   |
| Gross profit                                  |        | 22,016,383     |              | 52,922,861            |          | 13,170,957               |   |   | 17,072,959 |   |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Selling, general and administrative  expenses |        | 21,042,831     |              | 27,008,208            |          | 12,458,600               |   |   | 9,072,317 |   |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Operating profit                              |        | 973,552        |              | 25,914,653            |          | 712,357                  |   |   | 8,000,642 |   |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Other (expense) income                        |        |           |              |                  |          |                     |   |   |   |   |
| Interest expense                              |        | (671,188       | )                 | (537,025              | )             | (99,791                  | ) |   | (7,150,481 | ) |
| Interest income                               |        | 98,898         |              | 244,365               |          | 506,553                  |   |   | 87,029 |   |
| Other income, net                             |        | 848,988        |              | 979,813               |          | 369,274                  |   |   | 3,904 |   |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Total other income (expense)                  |        | 276,698        |              | 687,153               |          | 776,036                  |   |   | (7,059,548 | ) |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Income before income taxes                    |        | 1,250,250      |              | 26,601,806            |          | 1,488,393                |   |   | 941,094 |   |
| Income tax (benefit) expense                  |        | (30,713        | )                 | 439,098               |          | 41,052                   |   |   | 964,017 |   |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Net income/(loss)                             |        | $              | 1,280,963         |                  | $             | 26,162,708               |   | $ | 1,447,341 |   |   | $ | (22,923 | ) |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Pro forma income data (unaudited)             |        |           |              |                  |          |                     |   |   |   |   |
| Income before income taxes                    |        | $              | 1,250,250         |                  | $             | 26,601,806               |   | $ | 1,488,393 |   |   |   |   |
| Pro forma income tax expense                  |        | 1,097,741      |              | 11,507,106            |          | 949,825                  |   |   |   |   |
|                                          |        |           |              |                  |          |                     |   |   |   |   |
| Pro forma net income                          |        | $              | 152,509           |                  | $             | 15,094,700               |   | $ | 538,568 |   |   |   |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-6

----

 

**The Wornick Company**

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

 
| ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Unearned  Shares of  Employee Stock  Ownership  Trust** | ** ** | **Retained  Earnings** | ** **  | **Total**  | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------------|------------|-----------------------------------------------------------|------------|------------------------|-------------|------------|------------|
| ** **                                                  | ** ** | ** ** |
| ** **                                                  | ** ** | ** ** |
| ** **                                                  | ** ** | ** ** |
| **Common  Stock**                                           |
| **Shares**                                                  | ** ** | **Amount** |
| **Predecessor**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                       | ** ** | ** **                                                | ** ** | ** **             | ** **  | ** ** | ** ** |
| **Balances  at December 31, 2001**                     |       | 5,000,000  |       | $          | 50,000     |                             | $          | 25,439,989                                                |       | $                      | (14,000,461 | )          | $          | 6,187,181 |   | $ | 17,676,709 |   |
| Net income                                                  |       | —     |       | —     |       | —                           |       | —                                                    |       | 1,280,963              |        | 1,280,963  |       |
| Release of earned shares of Employee Stock Ownership  Trust |       | —     |       | —     |       | 2,531,313                        |       | 2,009,801                                                 |       | —                 |        | 4,541,114  |       |
| **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 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-7

----

 

**The Wornick Company**

**Consolidated Statements of Cash Flows**

 
| ** **                                                                                  | ** ** | **Predecessor**                  | ** ** | ** **  | **Successor** | ** **             |
|---------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------|---------------|------------------------|
| ** **                                                                                  | ** ** | ** **                       | ** ** | ** **  | ** **    | ** **             | ** ** | ** ** | **Period from** | ** ** |
| ** **                                                                                  | ** ** | ** **                       | ** ** | ** **  | ** **    | **Period from**        | ** ** | ** ** | **July 1,** | ** ** |
| ** **                                                                                  | ** ** | ** **                       | ** ** | ** **  | ** **    | **January 1,**    | ** ** | ** ** | **2004 to** | ** ** |
| ** **                                                                                  | ** ** | **Year Ended December 31,** | ** ** | **2004 to** | ** **    | ** **             | **December 31,** | ** ** |
| ** **                                                                                  | ** ** | **2002**                         | ** ** | **2003**    | ** **    | **June 30, 2004** | ** ** | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | ** **                       | ** ** | ** **  | ** **    | ** **             | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities**                                                   |       |                             |       |        |          |                   |   |   |   |   |
| Net income                                                                                  |       | $                                | 1,280,963  |        | $             | 26,162,708             |   | $ | 1,447,341 |   |   | $ | (22,923 | ) |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities |       |                             |       |        |          |                   |   |   |   |   |
| Depreciation of property and equipment                                                      |       | 1,631,691                        |       | 2,299,744   |          | 1,386,904              |   |   | 1,755,861 |   |
| Amortization of intangibles                                                                 |       | —                           |       | —      |          | —                 |   |   | 2,347,290 |   |
| Amortization of inventory step-up                                                           |       | —                           |       | —      |          | —                 |   |   | 1,767,037 |   |
| Amortization of bond issuance cost                                                          |       | —                           |       | —      |          | —                 |   |   | 294,942 |   |
| Loss on disposal of assets                                                                  |       | 13,654                           |       | 10,648      |          | —                 |   |   | 71,500 |   |
| Deferred income tax (benefit) expense                                                       |       | (200,500                         | )          | 181,500     |          | —                 |   |   | 912,067 |   |
| Compensation expense for Employee Stock                                                     |       |                             |       |        |          |                   |   |   |   |   |
| Ownership Trust shares released and  committed to be released                               |       | 4,541,114                        |       | 7,493,455   |          | 2,344,292              |   |   | — |   |
| Compensation expense for stock options                                                      |       | 7,062,874                        |       | 5,364,485   |          | 713,433                |   |   | — |   |
| Other stock-based compensation expense                                                      |       | —                           |       | 833,269     |          | 3,266,814              |   |   | 146,400 |   |
| Stock compensation plans                                                                    |       | —                           |       | —      |          | (4,270,995             | ) |   | — |   |
| Changes in assets and liabilities                                                           |       |                             |       |        |          |                   |   |   |   |   |
| Trade accounts receivable                                                                   |       | (7,030,126                       | )          | (1,891,101  | )             | 1,189,462              |   |   | (13,856,294 | ) |
| Inventories                                                                                 |       | (7,999,283                       | )          | (893,050    | )             | (4,693,075             | ) |   | 1,163,623 |   |
| Prepaid expenses and other current assets                                                   |       | (97,553                          | )          | (519,341    | )             | 162,149                |   |   | (531,107 | ) |
| Other noncurrent asset                                                                      |       | (71,616                          | )          | (242,329    | )             | (56,901                | ) |   | (62,113 | ) |
| Trade accounts payable and accrued expenses                                                 |       | 3,899,866                        |       | (3,975,129  | )             | (1,961,207             | ) |   | 9,290,272 |   |
| Accrued bond interest                                                                       |       | —                           |       | —      |          | —                 |   |   | 6,796,875 |   |
| Taxes payable                                                                               |       | (98,352                          | )          | (273,347    | )             | —                 |   |   | 51,950 |   |
| Net cash provided by (used in) operating  activities                                        |       | 2,932,732                        |       | 34,551,512  |          | (471,783               | ) |   | 10,125,380 |   |
|                                                                                        |       |                             |       |        |          |                   |   |   |   |   |
| **Cash  flows from investing activities**                                                   |       |                             |       |        |          |                   |   |   |   |   |
| Payments received on notes receivable                                                       |       | 254,458                          |       | 810,705     |          | 610,100                |   |   | — |   |
| Proceeds from the sale of investments                                                       |       | 928,571                          |       | 3,000,000   |          | 19,988,514             |   |   | — |   |
| Purchase of investments                                                                     |       | (3,000,000                       | )          | (8,993,000  | )             | (30,007,514            | ) |   | — |   |
| Business acquired                                                                           |       | —                           |       | —      |          | —                 |   |   | (165,035,252 | ) |
| Capital expenditures                                                                        |       | (6,045,529                       | )          | (12,525,994 | )             | (2,382,720             | ) |   | (4,301,098 | ) |
| Net cash used in investing activities                                                       |       | (7,862,500                       | )          | (17,708,289 | )             | (11,791,620            | ) |   | (169,336,350 | ) |
|                                                                                        |       |                             |       |        |          |                   |   |   |   |   |
| **Cash  flows from financing activities**                                                   |       |                             |       |        |          |                   |   |   |   |   |
| Change in book overdrafts                                                                   |       | 160,585                          |       | 587,080     |          | 243,027                |   |   | — |   |
| Net increase (decrease) in the line of  credit                                              |       | 6,700,000                        |       | (9,400,000  | )             | 8,700,000              |   |   | — |   |
| Proceeds from issuance of long-term debt                                                    |       | 3,425,000                        |       | 61,653      |          | —                 |   |   | 125,000,000 |   |
| Principal payments on long-term debt                                                        |       | (6,577,792                       | )          | (3,843,660  | )             | (629,305               | ) |   | — |   |
| Proceeds from issuance of common stock                                                      |       | —                           |       | —      |          | —                 |   |   | 37,500,000 |   |
| Net cash provided by (used in) financing  activities                                        |       | 3,707,793                        |       | (12,594,927 | )             | 8,313,722              |   |   | 162,500,000 |   |
| Net (decrease) increase in cash and cash  equivalents                                       |       | (1,221,975                       | )          | 4,248,296   |          | (3,949,681             | ) |   | 3,289,030 |   |
|                                                                                        |       |                             |       |        |          |                   |   |   |   |   |
| **Cash and  cash equivalents**                                                              |       |                             |       |        |          |                   |   |   |   |   |
| Beginning of period                                                                         |       | 2,264,346                        |       | 1,042,371   |          | 5,290,667              |   |   | — |   |
| End of period                                                                               |       | $                                | 1,042,371  |        | $             | 5,290,667              |   | $ | 1,340,986 |   |   | $ | 3,289,030 |   |
|                                                                                        |       |                             |       |        |          |                   |   |   |   |   |
| **Supplemental  disclosure of cash flow information**                                       |       |                             |       |        |          |                   |   |   |   |   |
| Cash paid during the period for interest                                                    |       | $                                | 671,188    |        | $             | 537,025                |   | $ | 77,114 |   |   | $ | 58,663 |   |
| Taxes paid during the period, net of refund                                                 |       | 271,000                          |       | 480,354     |          | 41,052                 |   |   | 122,925 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

F-8

----

 

**The Wornick Company**

**Notes to Consolidated Financial Statements**

 

**1.****                                      Organizationand Basis of Presentation**

** **

TheWornick Company, a Delaware corporation (the “Company” or “Successor”), an acquisitionvehicle formed by Veritas Capital Fund II, L.P., and its general partner,Veritas Capital Management II, L.L.C. (collectively “Veritas”), entered into anAsset Purchase and Sale Contract with The Wornick Company, a Nevada corporation(the “Predecessor”), and its subsidiaries, The Wornick Company Right AwayDivision, a Nevada corporation, The Wornick Company Right Away Division, L.P.,a Texas limited partnership, and Right Away Management Corporation, a Texascorporation.  The Asset Purchase and SaleContract was consummated on June 30, 2004, and resulted in the purchase bythe Successor and its subsidiaries, and the sale by the Predecessor and itssubsidiaries, of the business of the Predecessor and its subsidiaries as agoing concern, including substantially all of the operating assets of thePredecessor and its subsidiaries.

 

TheCompany produces, packages and distributes extended shelf-life foods, bothshelf stable and frozen, in flexible pouches and semi-rigid containers,primarily for the U.S. Department of Defense and commercial customers, as wellas for its own consumer-branded products.

 

Asdiscussed above, the Assets Purchase and Sale Contract was consummated on June 30,2004.  As such, the financial informationpresented represents: (i) the Consolidated Balance Sheet of thePredecessor at December 31, 2003, and the Successor at December 31,2004; (ii) the Consolidated Statements of Operations of the Predecessorfor the years ended December 31, 2003 and 2002 and the six-month periodended June 30, 2004, and of the Successor for the six-month period ended December 31,2004; and (iii) the Consolidated Statements of Cash Flows of thePredecessor for the years ended December 31, 2003 and 2002 and thesix-month period ended June 30, 2004, and the Successor for the six-monthperiod ended December 31, 2004.

 

**2.**                                      Acquisition

** **

OnJune 30, 2004 (the “Acquisition Date”), pursuant to the Assets Purchaseand Sale Contract described above in Note 1, the Company acquired all of theoperating assets of the Predecessor.  Theacquisition was financed through a combination of debt and equityissuances.  The Purchase price of $165.0million included approximately $10.1 million of transaction costs.  Goodwill of $77.6 million represented theexcess of the acquisition cost over the estimated fair value of theidentifiable assets acquired.  Theidentifiable intangible assets relate to the value of existing long-termcustomer supply contracts in place at the Acquisition Date.  The purchase price has been allocated to the assetsacquired in accordance with the purchase 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 |   |

 

Infinancing the acquisition, the Company received $165.5 million in proceeds fromdebt and equity financing, including a $3.0 million advance on a workingcapital line.

 

F-9

----

 

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

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

 

**3.**                                      Summary ofSignificant Accounting Policies

 

**Basis of Presentation**

TheCompany’s consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States ofAmerica.  The consolidated financialstatements include the accounts of The Wornick Company and its subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation.

 

**Cash and Cash Equivalents**

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

 

**Accounts Receivable**

Accountsreceivable are recorded at the invoiced amount and do not bear interest.  The allowance for doubtful accountsrepresents the Company’s best estimate of probable credit losses in itsexisting accounts receivable.  TheCompany continuously reviews the accuracy of its allowance for doubtfulaccounts.  Historically the Company hashad very minimal bad debts due to its customer base.  In addition, the Company does not have any off-balancesheet credit exposure related to its customers.

 

**Investments**

Investments,which consist of government asset backed debt securities, are stated at cost,which approximates fair value.

 

**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 therevolving line of credit (zero at December 31, 2004) approximates fairvalue due to its variable interest rate. The recorded value of the long-term debt approximates fair value basedon borrowing rates currently available to the Company for financingarrangements with similar terms and average maturities.

 

F-10

----

 

**Concentration of Credit Risk**

Financialinstruments that potentially subject the Company to concentration of creditrisk have historically consisted of cash and cash equivalents, trade accountsreceivable, and marketable securities. The Company’s cash and cash equivalents are held at financialinstitutions and may at times exceed federally insured limits.  To minimize risk, the Company maintains itscash and cash equivalents at financial institutions with high creditratings.  To mitigate risk with debtsecurities, the Company has invested in debt instruments that are backed byGovernment assets.  The Company’s tradeaccounts receivable are concentrated with a significant customer.  See Note 13 for additional informationregarding this significant customer.

 

**Derivative Financial Instruments**

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

 

Cashflows from financial instruments are recognized in the consolidated statementsof cash flows in a manner consistent with the underlying hedgedtransactions.  At December 31, 2003and June 30, 2004, the Predecessor had no outstanding derivativeinstruments.  At December 31, 2004,the Company had one outstanding derivative instrument, the fair value of whichwas not significant.

 

**Inventories**

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

 

**Property and Equipment**

Propertyand equipment are stated at cost. Depreciation and amortization of property and equipment are providedusing the straight-line method 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 3–10 years)                           |
| Machinery  and equipment                 |   | 5–15 years                                       |
| Office  equipment, fixtures and vehicles |   | 3–7 years                                        |

 

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

 

TheCompany assesses the impairment of property and equipment whenever events orchanges in circumstances indicate that the carrying amount of the assetmay not be recoverable.  Animpairment loss would be recognized when the carrying amount of the assetexceeds the estimated undiscounted future cash flows expected to result from theuse of the asset and its eventual disposition. The impairment to be recorded would be the excess of the assets carryingvalue over its fair value.  Fair valuewould be determined based upon the best information available in thecircumstances including quoted prices or other valuation techniques.

 

F-11

----

 

**Goodwill**

Goodwillis stated at cost.  During the year endedDecember 31, 2001, goodwill was amortized using the straight-line methodover 20 years.  Subsequent to January 1,2002, goodwill is no longer amortized. The carrying value of goodwill is tested for impairment at leastannually.  The recoverability ofunamortized goodwill is based upon the fair value of the Company which isdetermined by using a discounted cash flow analysis.

 

**Shipping and Handling Fees andCosts**

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

 

**Income Taxes**

Priorto the Transaction and sale of assets, the Predecessor was taxed as aSub-Chapter S corporation for federal income tax purposes.  Prior to January 2003, the Predecessorwas subject to Texas Franchise Tax. Beginning in January 2003, the Predecessor (and the Successor) arenot subject to Texas Franchise Tax.  Inconnection with the transaction, effective July 1, 2004, the Successorwill be taxed as a C-Corporation.

 

Deferredtax assets and liabilities are recognized future tax consequences attributableto differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax basis and operating loss andtax carryforwards.  Deferred tax assetsand liabilities were measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expectedto be recovered or settled.  The effecton deferred tax assets and liabilities of a change in tax status or tax ratesis recognized in income in the period that includes the enactment date.  The deferred tax assets are reviewed forrecoverability and valuation allowances are provided as necessary.

 

**Revenue Recognition**

TheCompany recognizes revenue from product sales when each of the followingconditions have been met: an arrangement exists, delivery has occurred, thereis a fixed price, and collectability is reasonably assured, which is generallyupon shipment.  The Company recordsestimated discounts as a reduction of revenue in the same period revenue isrecognized based on historical experience.

 

**Use of Estimates in FinancialStatements**

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

 

**Stock-Based Compensation Relatedto Stock Option Plans**

Aspermitted by the Statement of Financial Accounting Standards (“SFAS”) No. 123,*Accounting for Stock-Based Compensation*,the Predecessor elected to apply the provision of Accounting Principles BoardOpinion No. 25, *Accounting for StockIssued to Employees* (“Opinion No. 25”), in recognizing costs associatedwith the Predecessor’s stock option plans. Under Opinion No. 25, compensation was measured as the differencebetween the option’s exercise price and the fair value of the underlying sharesat the measurement date and subsequent changes in the fair value of theunderlying shares through the date the option is exercised or otherwisesettled.  The measurement date was thefirst date on which both the number of shares subject to the option and theoption exercise price are known.  Asdescribed further in Note 11, all of the Predecessor’s option arrangementswere compensatory.  The relatedcompensation expense has been determined based

 

F-12

----

 

upon the estimated fair values of the Predecessor’s common stock.  As described further in Note 12, theSuccessor currently has no stock compensation arrangements except for theissuance to certain members of management member units as of the acquisitiondate of TWC Holding LLC (the “Company’s Parent”).

 

**Recently Issued AccountingPronouncement**

OnNovember 24, 2004, the Financial Accounting Standards Board issued SFAS No. 151,*Inventory Costs, an amendment of ARB No. 43,Chapter 4*.  The standardadopts the International Accounting Standards Board view related to inventoriesthat abnormal amounts of idle capacity and spoilage costs should be excludedfrom the cost of inventory and expensed when incurred.  Additionally, the Board made the decision toclarify the meaning of the term “normal capacity.”  The provisions of SFAS No. 151 areapplicable to inventory costs incurred during the fiscal years beginning after June 15,2005.  The Company has not determined theimpact of this SFAS No. 151 to its inventory accounting results which mayresult upon adoption of this statement on January 1, 2006.

 

**4.**                                      SupplementalBalance Sheet Information

 

**Inventories**

Asummary of inventories is as follows:

 
| ** **      | ** ** | **Predecessor**             | ** ** | ** ** | **Successor**               | ** ** |
|-----------------|------------|-----------------------------|------------|------------|-----------------------------|------------|
| ** **      | ** ** | **December 31,  2003** | ** ** | ** ** | **December 31,  2004** | ** ** |
|            |       |                        |       |       |                        |       |
| Raw materials   |       | $                           | 13,226,080 |       |                        | $          | 15,187,856 |   |
| Work in process |       | 1,272,545                   |       |       | 1,838,828                   |       |
| Finished goods  |       | 5,551,418                   |       |       | 7,105,432                   |       |
|            |       | $                           | 20,050,043 |       |                        | $          | 24,132,116 |   |

 

**Notes Receivable and OtherCurrent Assets**

Notesreceivable relate to receivables from the Predecessor’s commercial customersfor reimbursement of property and equipment expenditures.  Additions to these notes have been treated asa noncash investing activity on the accompanying Predecessor consolidatedstatements of cash flows.  The repaymentterms were based on production volumes or sales contract lives, with interestranging from prime rate (4.00% at December 31, 2003) to 7%.  Notes receivable from these commercialcustomers were $2,635,174 at December 31, 2003.  These notes were not acquired by theSuccessor and, as such, have been retained by the Predecessor.

 

F-13

----

 

**Property and Equipment, Net**

Asummary of property and equipment, net is as follows:

 
| ** **                                       | ** ** | **Predecessor**             | ** ** | ** ** | **Successor**               | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **December 31,  2003** | ** ** | ** ** | **December 31,  2004** | ** ** |
|                                             |       |                        |       |       |                        |       |
| Leasehold improvements                           |       | $                           | 2,995,982  |       |                        | $          | 1,771,322 |   |
| Machinery and equipment                          |       | 24,543,406                  |       |       | 26,166,475                  |       |
| Office equipment, fixtures and vehicles          |       | 2,687,186                   |       |       | 2,395,476                   |       |
| Construction in progress                         |       | 4,795,341                   |       |       | 4,216,827                   |       |
|                                             |       | 35,021,915                  |       |       | 34,550,100                  |       |
| Less: Accumulated depreciation and  amortization |       | 13,304,309                  |       |       | 1,755,861                   |       |
|                                             |       | $                           | 21,717,606 |       |                        | $          | 32,794,239 |   |

 

Depreciationexpense for the years ended December 31, 2002 and 2003 and the six-monthperiods ended June 30, 2004 and December 31, 2004, was $1,631,691,$2,299,744, $1,386,904 and $1,755,861, respectively.

 

**Accrued Expenses**

Accruedexpenses are comprised of the following:

 
| ** **                              | ** ** | **Predecessor**             | ** ** | ** ** | **Successor**               | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **December 31,  2003** | ** ** | ** ** | **December 31,  2004** | ** ** |
|                                    |       |                        |       |       |                        |       |
| Compensation                            |       | $                           | 4,291,451  |       |                        | $          | 1,376,404 |   |
| Accrued government contract liabilities |       | 1,004,343                   |       |       | 35,264                      |       |
| Other                                   |       | 1,614,998                   |       |       | 1,710,778                   |       |
|                                    |       | $                           | 6,910,792  |       |                        | $          | 3,122,446 |   |

 

**5.**                                      Goodwill

** **

Goodwillis comprised of the following:

 
| ** **               | ** ** | **Predecessor**             | ** ** | ** ** | **Successor**               | ** ** |
|--------------------------|------------|-----------------------------|------------|------------|-----------------------------|------------|
| ** **               | ** ** | **December 31,  2003** | ** ** | ** ** | **December 31,  2004** | ** ** |
|                     |       |                        |       |       |                        |       |
| Goodwill                 |       | $                           | 15,508,934 |       |                        | $          | 77,573,207 |   |
| Accumulated amortization |       | (4,652,681                  | )          |       | —                      |       |
|                     |       | $                           | 10,856,253 |       |                        | $          | 77,573,207 |   |

 

TheCompany has completed its annual impairment test of goodwill (Note 3) andhas determined that there is no impairment at December 31, 2004.

 

**6.**                                      IntangibleAssets

** **

Inconnection with the acquisition described in Note 2, a portion of thepurchase price was allocated to identifiable intangible assets related to thevalue of long-term customer supply contracts in place

 

F-14

----

 

atthe Acquisition Date.  The original valueof these contracts was $24,170,000 and their useful lives range from three toeight years.  Expense related toamortization of intangible assets for the six-months ended December 31,2004, amounted to $2,347,290.

 

Scheduledamortization of these assets is as follows:

 
| 2005       |   | $         | 4,694,580  |   |
|------------|--------|-----------|------------|--------|
| 2006       |   | 4,694,580 |       |
| 2007       |   | 4,627,918 |       |
| 2008       |   | 4,856,248 |       |
| 2009       |   | 2,421,226 |       |
| Thereafter |   | 528,158   |       |
|       |   | $         | 21,822,710 |   |

 

**7.**                                      NotesPayable to Bank and Long-Term Debt

** **

Asummary of long-term debt at December 31, 2003 and 2004, is as follows:

 
| ** **                                                                                                                      | ** ** | **Predecessor**             | ** ** | ** ** | **Successor**               | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------|-----------------------------|------------|
| ** **                                                                                                                      | ** ** | **December 31,  2003** | ** ** | ** ** | **December 31,  2004** | ** ** |
|                                                                                                                            |       |                        |       |       |                        |       |
| 10-7/8% Senior secured notes; due 2011                                                                                          |       | $                           | —     |       |                        | $          | 125,000,000 |   |
| Note payable to a bank in quarterly installments  of $618,095 plus interest (4.00% at December 31, 2003); due 2005         |       | 4,944,763                   |       |       | —                      |       |
| Note payable to a third party in monthly  installments of $1,868 plus interest (4.00% at December 31, 2003); due  in 2006. |       | 48,575                      |       |       | —                      |       |
|                                                                                                                            |       | 4,993,338                   |       |       | 125,000,000                 |       |
| Less: Current maturities                                                                                                        |       | 2,494,819                   |       |       | —                      |       |
| Long-term debt, excluding current  maturities                                                                                   |       | $                           | 2,498,519  |       |                        | $          | 125,000,000 |   |

 

AtDecember 31, 2003, the Predecessor had debt facilities of $10.0 millionand $16.0 million pursuant to revolving loan agreements.  Such revolving loan agreements were subjectto borrowing base limitations and bore interest at The Wall Street Journal’sprime rate (4.00% at December 31, 2003) and were set to expire on August 28,2004.  There was no outstanding balanceat December 31, 2003.  As describedfurther below, in connection with the acquisition the revolving loan agreementswere replaced with a single separate $15.0 million and $10.0 million revolvingloan facility with the same lender.

 

Inconnection with the financing of the acquisition described in Note 2, theCompany issued $125.0 million 10-7/8% Senior Secured Notes due 2011 andalso secured additional financing through a Revolving Loan Agreement whichprovides the Company $15.0 million of revolving loan financing through June 30,2009, with an additional revolving credit facility of $10.0 millionbecoming available upon certain events. 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.

 

F-15

----

 

Intereston amounts outstanding under the Revolving Loan Agreement will vary at afluctuating rate per annum that is equal to the prime rate (5.25% at December 31,2004) as published daily by The Wall Street Journal.  Amounts outstanding under the Revolving LoanAgreement are collateralized by substantially all of the operating assets ofthe Company.  The lien on such collateralis senior to the lien on the collateral that secures the senior securednotes.  In connection with completing theacquisition, the Company borrowed $3.0 million against the revolving loanfacility to fund the acquisition and initial working capital of theSuccessor.  This amount was subsequentlyrepaid.  There are no amounts outstandingunder the revolving loan agreement at December 31, 2004.

 

Thesenior secured notes are collateralized by substantially all assets and otherproperty of the Company.  The lien onsuch collateral, however, is subordinate to the lien on the collateral securingthe Revolving Loan Agreement.  Intereston the senior secured notes is payable semi-annually.  Interest expense on the senior secured notesand revolving loan facility for the year ended December 31, 2004 amountedto $6,796,875 and $58,663, respectively.

 

Amountsdue under the senior secured notes and the revolving loan facility are subjectto an intercreditor agreement.  TheCompany is required to meet certain financial covenants related primarily tominimum working capital amounts and minimum working capital ratios as well asminimum profitability and minimum net worth calculations.

 

**8.**                                      Income Taxes

** **

Inconnection with the transaction as discussed in Note 2, the Successorentity is taxed as a C-Corporation whereas the Predecessor was a pass-throughentity qualified under Subchapter S of the Internal Revenue Code.

 

F-16

----

 

Incometax expense (benefit) consist of the following:

 
| ** **                              | ** ** | **Current** | ** ** | **Deferred** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| **Predecessor**                         |       |        |       |         |       |      |       |
| ** **                              |       |        |       |         |       |      |       |
| **Year  Ended December 31, 2002**       |       |        |       |         |       |      |       |
| State                                   |       | $           | 132,791    |         | $          | (200,500  | )          | $ | (67,709 | ) |
| Local                                   |       | 36,996      |       | —       |       | 36,996    |       |
|                                    |       | $           | 169,787    |         | $          | (200,500  | )          | $ | (30,713 | ) |
|                                    |       |        |       |         |       |      |       |
| **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                                   |       | —      |       | —       |       | —    |       |
| Local                                   |       | 51,950      |       | —       |       | 51,950    |       |
|                                    |       | $           | 51,950     |         | $          | 912,067   |       | $ | 964,017 |   |

 

Prior toJanuary 2003, the Predecessor was subject to Texas franchise tax.  Subsequent to December 31, 2002, neitherthe Predecessor nor the Company are subject to Texas franchise tax.  As such all remaining deferred Texasfranchise taxes totaling $181,500 were reversed during 2003.  The current tax expense of $257,598 and$51,950 at December 31, 2003 and 2004, respectively, relate to localmunicipal taxes.

 

Inconnection with the transaction discussed in Note 1, the Company will betaxed as a C-Corporation whereas the Predecessor was a pass-through entitywhich qualified under Subchapter S of the Internal Revenue Code.

 

Theincome tax provision for the period ended December 31, 2004 is different fromthat which would be obtained by applying the statutory federal income tax rate to income before incometaxes.  The items causing this differencefor the period from July 1, 2004 through December 31, 2004, are asfollows:

 
| Tax expense at U.S. statutory rate         |   | $       | 329,383 |   |
|--------------------------------------------|--------|---------|---------|--------|
| Local income taxes, net of federal benefit |   | 51,950  |    |
| Nondeductible expenses and other           |   | 58,397  |    |
| Valuation allowance on deferred tax assets |   | 524,287 |    |
|                                       |   | $       | 964,017 |   |

 

F-17

----

 

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

 
| Deferred income tax assets                  |   |      |    |
|---------------------------------------------|--------|-----------|---------|
| Trade receivables                           |   | $         | 8,253   |   |
| Inventories                                 |   | 261,745   |    |
| Identifiable intangibles                    |   | 539,568   |    |
| Operating loss carryforwards                |   | 1,421,038 |    |
| Valuation allowance on deferred tax asset   |   | (524,287  | )       |
| Net deferred income tax assets              |   | 1,706,317 |    |
| Deferred income tax liabilities             |   |      |    |
| Goodwill                                    |   | 912,067   |    |
| Property, plant and equipment               |   | 1,706,317 |    |
| Total gross deferred income tax liabilities |   | 2,618,384 |    |
| Net deferred income tax liabilities         |   | $         | 912,067 |   |

 

Avaluation allowance has been provided against deferred tax assets as managementbelieves that it is more likely than not that these tax benefits will not be realizedbased upon the existing uncertainty regarding whether the Company will generatefuture taxable income due to additional charges related to amortization ofintangibles, bond issuance cost and goodwill. Total net operating losses at December 31, 2004 were $4,060,110.  These net operating losses expire in fiscalyear 2022.

 

Theaccompanying Consolidated Statements of Operations of the Predecessor alsopresents pro forma net income data which assumes the Predecessor was taxed as aC-Corporation for the periods presented utilizing a federal income tax rate of35%.  The difference between the 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.

** **

**9.****             Commitments andContingencies**

** **

Eachof the Company’s divisions leases manufacturing facilities from the Predecessor’sformer president and chief executive officer and former sole shareholder.  These leases are each for a 15-year periodexpiring in 2010 and require the Company to pay all maintenance, taxes, andinsurance.  Monthly rentals are subjectto increases based on the consumer price index (“CPI”) for the previous twoyears, but are never subject to decreases. Each of these leases has been classified as operating leases.

 

ThePredecessor paid approximately $1,115,000, $1,310,000 and $592,000 in totalrent expense for the years ended December 31, 2002, 2003 and for thesix-month period ended June 30, 2004, respectively.  The Company paid approximately $592,000 forthe six-month period ended December 31, 2004.

 

TheCompany is also obligated under operating leases for certain manufacturing andoffice facilities and equipment.  Rentalexpense for these leases for the years ended December 31, 2002, 2003 andfor the six-month period ended June 30, 2004, for the Predecessor wereapproximately $672,000, $1,799,000 and $1,203,000, respectively.  The Company paid approximately $1,164,000 inrental expense for these same items for the six-month period endedDecember 31, 2004.

 

F-18

----

 

Futureminimum lease payments under noncancellable operating leases with remaininglease terms in excess of one year as of December 31, 2004, are as follows:

 
| **Years Ending December 31,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|
| 2005                          |       | $          | 2,750,891  |   |
| 2006                          |       | 2,614,200  |       |
| 2007                          |       | 2,532,798  |       |
| 2008                          |       | 1,633,050  |       |
| 2009                          |       | 477,117    |       |
| Thereafter                    |       | 1,184,002  |       |
|                          |       | $          | 11,192,058 |   |

 

**10.****          Defined ContributionEmployee Benefit Plans**

** **

In connectionwith the Asset Sale and Purchase discussed in Note 2, the Company adoptedThe Wornick Company 401(k) Savings Plan (the “401(k) Plan”), a plan similar inall material respects to the plan available under the Predecessor, which coversall eligible employees who 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 a matching contributionat 100% for the first 3% and 50% for the subsequent 2% of the participant’selective compensation deferral.  Prior tothe modification, a plan participant may have elected to defer up to 15%of compensation for the plan year.  TheCompany would make a matching contribution of 50% of the first 6% of anemployee’s compensation deferral.  ThePredecessor contributed approximately $193,000, $413,000 and $222,394 to the401(k) Plan for the years ended December 31, 2002, 2003 and for thesix-month period ended June 30, 2004, respectively.  The Successor contributed approximately$202,006 to the 401(k) Plan for the six-month period ended December 31,2004, respectively.

 

TheCompany maintains various defined contribution welfare benefit plans to providemedical, dental and life insurance benefits covering active eligible full timeemployees.  The life insurance and dentalplans are fully insured plans whereby the Company pays annual premiums.  The medical plan is subject to self-insuredmaximum contributions for which the Company maintains adequate reserves.

 

**11.****          Predecessor StockCompensation Plans**

** **

**Stock Option Plans**

During 1998,the Company adopted The Wornick Company Executive Stock Option Plan (“OptionPlan”) for the benefit of designated key employees at an option price of $3.58per share.  The Company granted optionsto purchase 405,405 shares of common stock on January 1, 1999, under theOption Plan.  An employee’s right toexercise the stock options granted is contingent upon continued employment withthe Company.  Vesting, for purposes ofthe Option Plan, occurred at a rate of 25% per year beginning December 31,1999.  The Board of Directors acceleratedthe vesting of all options outstanding in 2001. Options may be exercised during the period of January 1, 2003through December 31, 2005.

 

F-19

----

 

Also in 1998,the Company adopted the Board of Directors Stock Option Plan (“Board Plan”) forthe benefit of the members of the Company’s Board of Directors.  The Company granted options to purchase up to100,000 shares of common stock at an option price of $3.58 per share inJune 1998 under the Board Plan.

 

Lastly,in 1998, the Company adopted the Key Personnel Stock Option Plan (“KeyPersonnel Plan”) for the benefit of designated key executives and certainmembers of the Company’s Board of Directors. The Company granted options to purchase 120,000 shares of common stockat an option price equal to $4.30 per share in December 1998 under the KeyPersonnel Plan.

 

Optioneesare fully vested in the options granted under the Board Plan and Key PersonnelPlan.  These options may be exercisedduring the period of January 1, 2003 through December 31, 2005.

 

In2000, the Company granted an option to an employee to purchase 10,500 shares ofcommon stock at $5.08 per share under a separate stock option agreement.  The Board of Directors fully vested all ofthese options during 2001.  InDecember 2000, the Company granted separate options to its new boardchairman and its new President and Chief Executive Officer to purchase 125,000shares of common stock under separate stock option agreements.  The options were 100% vested at the date ofgrant.  The option price was $5.89, thefair market value of the stock on December 31, 2000.  Options may be exercised during the period ofJanuary 1, 2003 through December 31, 2005.

 

Ifany of the options above are not fully exercised by December 31, 2005, theunexercised portion of the option will be cancelled and the Company will make acash distribution to the option holder for the difference between the fairvalue of the stock on December 31, 2005, and the exercise price of therelated option.  In addition, the termsof each of the option awards described above provide the individual with theright to immediately sell back to the Company, at fair value, any stockobtained through the exercise of any option award.  Under accounting principles generally acceptedin the United States of America, all of the options above are accounted for ascompensatory plans with compensation expense being recorded based upon the fairvalue of the underlying stock through the date the award is exercised orotherwise settled.  Total compensationexpense related to all of the above options was $7,062,874 and $5,364,485 forthe years ended December 31, 2002 and 2003, respectively, and $713,433 forthe six-month period ended June 30, 2004.

 

Asummary 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 |   |

 

F-20

----

 

Alloptions are to be settled subsequent to June 30, 2004, with proceeds from the acquisition.

 

**Other Stock****-based Compensation Plans**

TheCompany adopted an incentive cash compensation plan effective December 20,2002.  Under the terms of the plan,employees would receive a base cash compensation totaling $475,000 adjusted inproportion to the changes in the fair value of the shares of the Company’scommon stock from $7.05 per share.  InJune 2003 the Company granted certain Directors a total of 60,000 stockunits which effectively provide the individual the right to receive a cashpayment for the increase in the fair value of the Company’s common stock inexcess of $17.44.  Compensation expenseof $833,269 was recorded for the year ended December 31, 2003, and$3,266,814 for the six-month period ended June 30, 2004, related to theseplans.  Payments to employees andDirectors under these plans were contingent upon the continued employment (orservice in the case of the Directors) with the Company and are payable at theearlier of December 31, 2005, or upon a change in control of the Company.

 

Inaddition, in July 2001 the Company had adopted an incentive cashcompensation plan to one employee which is contingent upon a change in control of the Company.  The employee received a base compensation of$250,000 adjusted in proportion to the changes in fair value of the shares ofthe Company’s common stock from $6.47 per share.

 

Allof these amounts are to be settled by the Predecessor subsequent toJune 30, 2004, with proceeds from the acquisition.

 

**Employee Stock Ownership Plan**

InNovember 1995, the Company established an employee stock ownership plan,The Wornick Company Employee Stock Ownership Plan, and a trust, The WornickCompany Employee Stock Ownership Trust (“ESOT”), to provide all eligibleemployees of the Company the opportunity to obtain beneficial interests in thestock of the Company.  The ESOPauthorized the ESOT to purchase all of the Company’s common stock outstanding,5 million shares, from the sole shareholder for $34.0 million.  The Company entered into an agreement with abank to borrow $34.0 million in connection with the ESOT that was loanedon the same terms to the ESOT.

 

Theloan obligation of the ESOT is considered unearned employee benefit expenseand, as such, was recorded as a reduction of the Company’s stockholder’sequity.  The Company contributions shallbe made to the ESOT in such amounts as may be determined by the Company’sBoard of Directors.  The Company willcontribute sufficient amounts to the ESOT that, together with dividends onunallocated shares held by the ESOT and other earnings on ESOT nonstock assets willenable the ESOT to service principal and interest payments on the note payableto the Company.

 

Asa result of a tax change by the Internal Revenue Service, the terms of the loanto the ESOT are no longer the same as those of the loan between the Company andthe bank.

 

Compensationcost is recognized as shares are committed to be released based on theiraverage fair values.  The Companyrecorded compensation costs totaling $4,541,114 and $7,493,455 for the yearsended December 31, 2002 and 2003, respectively, and $2,344,292 for thesix-month period ended June 30, 2004. The excess of the current estimated fair value of the shares releasedover their cost totaled $2,531,313 and $5,666,366 for the years ended December 31,2002 and 2003, respectively, and $1,823,044 for the six-month period endedJune 30, 2004 (based upon the shares expected to be released in 2004), andhas been recorded as an increase to additional paid-in capital.

 

F-21

----

 

Aslong as the loan to the ESOT is outstanding, shares of common stock will bereleased and allocated to eligible employees when loan payments arereceived.  The number of shares allocatedto participants is a formula based on payroll. The number of shares allocated and unallocated at December 31, 2002and 2003, and for the six-month period ended June 30, 2004 (based uponshares expected to be allocated), are as follows:

 
| ** **  | ** ** | ** **       | ** ** | **Six-Month  Period Ended** | ** ** |
|-------------|------------|------------------|------------|-----------------------------|------------|
| ** **  | ** ** | **December 31,** | ** ** | **June 30,**                | ** ** |
| ** **  | ** ** | **2002**         | ** ** | **2003**                    | ** ** | **2004** | ** ** |
|        |       |             |       |                        |       |   |   |
| Allocated   |       | 3,236,668        |       | 3,505,357                   |       | 3,581,993 |   |
| Unallocated |       | 1,763,332        |       | 1,494,643                   |       | 1,418,007 |   |
|        |       | 5,000,000        |       | 5,000,000                   |       | 5,000,000 |   |

 

**12.****          Successor StockCompensation Plan**

** **

Inconnection with completing the acquisition, effective June 30, 2004,certain members of the Company’s management and its directors were awardedClass B membership units of TWC Holding LLC (the Company’s Parent).  Pursuant to the terms of the operatingagreement governing TWC Holding LLC, the holders of Class B interests areentitled to receive up to 7.875%, in the aggregate, of all distributions madeby TWC Holding LLC after the holders of Class A interests in TWC HoldingLLC have received a return of their invested capital, provided that the holdersof the Class A interests have received an 8% per annum internal rate ofreturn on their invested capital.  TheClass B interests are subject to a five-year vesting schedule with anyunvested interests reverting to the holders of Class A interests.

 

Becausethese Class B units were issued to members of management and itsdirectors, these awards are considered to be compensatory to the Company overthe vesting period.  The total fair value of these Class Bunits as of their issuance date was determined to be $1,464,000, $146,400 ofwhich has been recognized as compensation expense in the six-month period endedDecember 31, 2004 (with a corresponding offset to additional paid-incapital).

 

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

** **

MajorCustomer:

Duringthe years ended December 31, 2002 and 2003, and the six-month periodsended June 30, 2004 and December 31, 2004, the Predecessor had onemajor customer, which accounted for approximately $105,043,000 and $284,699,000or 80%, and 89% of net revenue, respectively, for the years ended December 31,2002 and 2003, and approximately $66,799,000 and $82,955,000 or 83% and 83% ofnet revenues for the six-month periods ended June 30, 2004 andDecember 31, 2004, respectively. Approximately $12,052,000, or 82% and $10,132,000, or 73%, of netaccounts receivable was attributable to this major customer as ofDecember 31, 2003 and 2004, respectively.

 

RelatedParty:

TheCompany has a management service agreement with Veritas.  Veritas, through TWC Holding LLC (The Company’sparent) owns essentially all of the Company’s common stock.  Under the terms of the agreement Veritasprovides management and advisory services to the Company for an annualmanagement fee of $300,000.  Fees chargedunder the management services agreement for

 

F-22

----

 

thesix month period ended December 31, 2004 were $150,000, all of which was paidprior to December 31, 2004.

 

Inaddition, on February 11, 2005, the Company’s Parent (TWC Holding LLC)issued $26.0 million of 13.875% Senior PIK Notes due 2011.  Neither the Company or any of itssubsidiaries guranteed the Senior PIK notes. The notes will limit the Company’s ability to incur additionalindebtednessand pay dividends or make other distributions as well as to makecertain investments and sell certain assets or merge with or into othercompanies. Because TWC Holding LLC is a holding company with no operations andhas only its investment in the Company, future cash flows of the Companycommencing in 2005 through 2011 will also be required to service the debt ofTWC Holding LLC.

 

**14.****          Commitment andContingencies**

** **

TheCompany is involved in various claims and legal actions arising in the ordinarycourse of business.  In the opinion ofmanagement, theultimate disposition of these matters will not have a material adverse effecton the Company’s financial position, results of operations or liquidity.

 

**15.****          Operating SegmentInformation**

** **

TheCompany has two operating segments Right Away Division (“RAD”) and PreparedFoods Division (“PFD”).  RAD is locatedin Texas and primarily sells its product to the U.S. Department ofDefense.  PFD is located in Ohio and alsosells directly to the U.S. Department of Defense as well as to commercialbranded food companies and inter-segment sales to RAD.  Management evaluates segment performancebased on several factors, including operating profit.

 

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

 

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

 

F-23

----

 

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

 
| ** **                     | ** ** | ** **                   | ** ** | **Predecessor**             | ** ** | ** **   | **Successor**               | ** ** |
|--------------------------------|------------|------------------------------|------------|-----------------------------|------------|--------------|-----------------------------|------------|
| ** **                     | ** ** | **Year Ended  December 31,** | ** ** | **Six-Month  Period Ended** | ** ** | ** **   | **Six-Month  Period Ended** | ** ** |
| **(in  thousands of dollars)** | ** ** | **2002**                     | ** ** | **2003**                    | ** ** | **June 30,** | ** **                  | ** ** | **December** | ** ** |
|                           |       |                         |       |                        |       |         |                        |       |   |   |
| DOD Sales                      |       |                         |       |                        |       |         |                        |       |   |   |
| Meals Ready-to-Eat             |       | $                            | 47,401     |                        | $          | 135,327      |                        | $          | 39,078 |   |   | $ | 59,076 |   |
| Unitized Group Rations         |       | 39,106                       |       | 126,996                     |       | 24,518       |                        |       | 18,397 |   |
| Tray-Pack                      |       | 15,309                       |       | 19,469                      |       | 2,410        |                        |       | 4,302 |   |
| Military Other                 |       | 3,227                        |       | 2,907                       |       | 793          |                        |       | 1,180 |   |
| Total DOD sales                |       | 105,043                      |       | 284,699                     |       | 66,799       |                        |       | 82,955 |   |
| Co-manufactured                |       | 13,069                       |       | 25,621                      |       | 10,329       |                        |       | 11,990 |   |
| Branded                        |       | 2,677                        |       | 2,203                       |       | 2,359        |                        |       | 2,271 |   |
| Other                          |       | 9,645                        |       | 5,847                       |       | 1,437        |                        |       | 3,165 |   |
|                           |       | $                            | 130,434    |                        | $          | 318,370      |                        | $          | 80,924 |   |   | $ | 100,381 |   |

 

F-24

----

 

Reportableoperating segment financial information for the years ended December 31, 2002, 2003 andfor the six-month periods ended June 30, 2004 and December 31, 2004is 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**                 |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2002                                     |       | $                  | 95,005,151 |                       | $          | —                        |       | $                               | 8,173,623  |                                     | $          | 774,741           |       | $                         | —     |   | $ | 26,313,665 |   | $ | 1,454,632 |   |
| 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                   |       |
|                                     |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| **Prepared  Foods**                      |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2002                                     |       | 35,428,957         |       | 28,660,590                 |       | 5,763,956                     |       | 839,056                         |       | —                                   |       | 31,100,471        |       | 4,578,689                 |       |
| 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                 |       |
|                                     |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| **Corporate**                            |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2002                                     |       | —             |       | —                     |       | (12,831,142                   | )          | 17,894                          |       | 11,603,988                               |       | 35,733,082        |       | 12,208                    |       |
| 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                         |       | —                                   |       | 110,692,286       |       | —                    |       |
|                                     |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| **Eliminations**                         |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2002                                     |       | —             |       | (28,660,590                | )          | (132,885                      | )          | —                          |       | —                                   |       | (29,449,035       | )          | —                    |       |
| 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       | )          | —                    |       |
|                                     |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| **Total  Company**                       |       |               |       |                       |       |                          |       |                            |       |                                     |       |              |       |                      |       |
| 2002                                     |       | 130,434,108        |       | —                     |       | 973,552                       |       | 1,631,691                       |       | 11,603,988                               |       | 63,698,183        |       | 6,045,529                 |       |
| 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                       |       | —                                   |       | 179,944,639       |       | 4,301,098                 |       |
|                                          |            |                    |            |                            |            |                               |            |                                 |            |                                          |            |                   |            |                           |            |  |  |  |  |  |  |  |

 

**16.****          Condensed ConsolidatedFinancial Information**

** **

Inconnection with financing of the Asset Purchase transaction described in Note 2, theCompany issued $125.0 million of Senior Notes due 2011.  The notes are general obligations of theCompany and are jointly and severally, irrevocably and unconditionally,guaranteed on a senior secured basis by each of the Successor entity’s presentand future Subsidiaries (the “Subsidiary Guarantors”).

 

F-25

----

 

Thefollowing information presents consolidated balance sheet, statement of operations andstatement of cash flows data for the Subsidiary Guarantors at December 31,2003 and 2002, and for the years ended December 31, 2003, 2002 and 2001:

 

Condensedconsolidated balance sheet at December 31, 2003:

 
| ** **                                         | ** ** | **Predecessor** | ** **  |
|----------------------------------------------------|------------|-----------------|-------------|
| ** **                                         | ** ** | **Parent**      | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                               |       |            |        |   |   |   |   |   |   |
| **Assets**                                         |       |            |        |   |   |   |   |   |   |
| Current assets                                     |       |            |        |   |   |   |   |   |   |
| Cash and cash equivalents                          |       | $               | 1,652,570   |   | $ | 3,638,097 |   | $ | — |   | $ | 5,290,667 |   |
| Investments                                        |       | 8,993,000       |        | — |   | — |   | 8,993,000 |   |
| Trade accounts receivable                          |       | 2,615,444       |        | 12,071,234 |   | — |   | 14,686,678 |   |
| Inventories                                        |       | 8,746,629       |        | 11,856,036 |   | (552,622 | ) | 20,050,043 |   |
| Prepaid expenses and other current assets          |       | 558,515         |        | 527,885 |   | — |   | 1,086,400 |   |
| Notes receivable, current portion                  |       | 1,532,647       |        | — |   | — |   | 1,532,647 |   |
| Interdivision receivables                          |       | 2,000           |        | 33,641 |   | (35,641 | ) | — |   |
| Total current assets                               |       | 24,100,805      |        | 28,126,893 |   | (588,263 | ) | 51,639,435 |   |
| Investments in subsidiary guarantors               |       | 51,293,643      |        | — |   | (51,293,643 | ) | — |   |
| Property and equipment, net                        |       | 16,212,348      |        | 5,505,258 |   | — |   | 21,717,606 |   |
| Goodwill                                           |       | 10,856,253      |        | — |   | — |   | 10,856,253 |   |
| Notes receivable, excluding current portion        |       | 1,102,527       |        | — |   | — |   | 1,102,527 |   |
| Other noncurrent assets                            |       | 1,272,954       |        | 119,922 |   | — |   | 1,392,876 |   |
| Total assets                                       |       | $               | 104,838,530 |   | $ | 33,752,073 |   | $ | (51,881,906 | ) | $ | 86,708,697 |   |
| **Liabilities  and Stockholder’s Equity**     |       |            |        |   |   |   |   |   |   |
| Current liabilities                                |       |            |        |   |   |   |   |   |   |
| Book overdraft                                     |       | $               | —      |   | $ | 747,665 |   | $ | — |   | $ | 747,665 |   |
| Current maturities of long-term debt               |       | 2,472,400       |        | 22,419 |   | — |   | 2,494,819 |   |
| Trade accounts payable                             |       | 1,526,726       |        | 714,480 |   | — |   | 2,241,206 |   |
| Accrued expenses                                   |       | 2,951,447       |        | 3,959,345 |   | — |   | 6,910,792 |   |
| Interdivision payables                             |       | 23,047,276      |        | (23,011,635 | ) | (35,641 | ) | — |   |
| Total current liabilities                          |       | 29,997,849      |        | (17,567,726 | ) | (35,641 | ) | 12,394,482 |   |
| Accrued stock compensation                         |       | 13,827,478      |        | — |   | — |   | 13,827,478 |   |
| Accrued incentive compensation                     |       | 833,269         |        | — |   | — |   | 833,269 |   |
| Long-term debt, excluding current  maturities      |       | 2,472,363       |        | 26,156 |   | — |   | 2,498,519 |   |
| Total liabilities                                  |       | 47,130,959      |        | (17,541,570 | ) | (35,641 | ) | 29,553,748 |   |
| Stockholder’s equity                          |       |            |        |   |   |   |   |   |   |
| Common stock                                       |       | 50,000          |        | — |   | — |   | 50,000 |   |
| Additional paid-in capital                         |       | 33,637,668      |        | — |   | — |   | 33,637,668 |   |
| Unearned shares of Employee Stock Ownership  Trust |       | (10,163,571     | )           | — |   | — |   | (10,163,571 | ) |
| Retained earnings                                  |       | 34,183,474      |        | 51,293,643 |   | (51,846,265 | ) | 33,630,852 |   |
| Total stockholder’s equity (deficit)          |       | 57,707,571      |        | 51,293,643 |   | (51,846,265 | ) | 57,154,949 |   |
| Total liabilities and stockholder’s equity    |       | $               | 104,838,530 |   | $ | 33,752,073 |   | $ | (51,881,906 | ) | $ | 86,708,697 |   |

 

F-26

----

 

Condensed consolidated balance sheet atDecember 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 | ) | — |   |
| Prepaid expenses and other current assets          |       | 246,316       |        | 284,790 |   | — |   | 531,106 |   |
| Inventories                                        |       | 10,491,680    |        | 13,640,436 |   | — |   | 24,132,116 |   |
| Deferred income taxes                              |       | 269,998       |        | — |   | — |   | 269,998 |   |
| Total current assets                               |       | 21,329,163    |        | 25,571,647 |   | (4,822,266 | ) | 42,078,544 |   |
| 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 |   |
| Noncurrent deferred income taxes                   |       | —        |        | — |   | — |   | — |   |
| Other noncurrent assets                            |       | 5,531,183     |        | 144,756 |   | — |   | 5,675,939 |   |
| Total assets                                       |       | $             | 177,293,501 |   | $ | 36,053,360 |   | $ | (33,402,222 | ) | $ | 179,944,639 |   |
| **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                           |       |          | 1,182,065   |   | — |   | — |   |   | 1,182,065 |   |
| Long-term debt, excluding current  maturities      |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total liabilities                                  |       | 139,670,024   |        | 7,473,404 |   | (4,822,266 | ) | 142,321,162 |   |
| Stockholder’s equity                          |       |          |        |   |   |   |   |   |   |
| Common stock                                       |       | —        |        | — |   | — |   | — |   |
| Additional paid-in capital                         |       | 37,646,400    |        | 26,624,729 |   | (26,624,729 | ) | 37,646,400 |   |
| Unearned shares of Employee Stock Ownership  Trust |       | —        |        | — |   | — |   | — |   |
| 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    |       | $             | 177,293,501 |   | $ | 36,053,360 |   | $ | (33,402,222 | ) | $ | 179,944,639 |   |

 

F-27

----

 

Condensedconsolidated statement of operations for the year ended December 31, 2002:

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |            |       |   |   |   |   |   |   |
| Net sales                                     |       | $               | 64,089,547 |   | $ | 95,005,151 |   | $ | (28,660,590 | ) | $ | 130,434,108 |   |
| Cost of sales                                 |       | 53,830,389      |       | 83,115,041 |   | (28,527,705 | ) | 108,417,725 |   |
| Gross profit                                  |       | 10,259,158      |       | 11,890,110 |   | (132,885 | ) | 22,016,383 |   |
| Selling, general and administrative  expenses |       | 17,326,344      |       | 3,716,487 |   | — |   | 21,042,831 |   |
| Operating (loss) profit                       |       | (7,067,186      | )          | 8,173,623 |   | (132,885 | ) | 973,552 |   |
| Other income (expense)                        |       |            |       |   |   |   |   |   |   |
| Interest expense                              |       | (795,341        | )          | (4,840 | ) | 128,993 |   | (671,188 | ) |
| Interest income                               |       | 54,236          |       | 173,655 |   | (128,993 | ) | 98,898 |   |
| Executive/administration expense (income)     |       | 774,500         |       | (774,500 | ) | — |   | — |   |
| Other income, net                             |       | 130,014         |       | 718,974 |   | — |   | 848,988 |   |
| Equity in earnings of subsidiary guarantors   |       | 8,247,129       |       | — |   | (8,247,129 | ) | — |   |
| Total other income                            |       | 8,410,538       |       | 113,289 |   | (8,247,129 | ) | 276,698 |   |
| Income before income taxes                    |       | 1,343,352       |       | 8,286,912 |   | (8,380,014 | ) | 1,250,250 |   |
| Income tax expense (benefit)                  |       | (70,496         | )          | 39,783 |   | — |   | (30,713 | ) |
| Net income                                    |       | $               | 1,413,848  |   | $ | 8,247,129 |   | $ | (8,380,014 | ) | $ | 1,280,963 |   |

 

Condensed consolidated statement ofoperations for the 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                               |       | (464,460        | )           | (72,565 | ) | — |   | (537,025 | ) |
| Interest expense                              |       | 163,258         |        | 81,107 |   | — |   | 244,365 |   |
| 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 |   |

 

 

F-28

----

 

Condensedconsolidated statement of operations for the six-month period endedJune 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 expense                              |       | (95,403         | )          | (4,388 | ) | — |   | (99,791 | ) |
| Interest income                               |       | 483,029         |       | 23,524 |   | — |   | 506,553 |   |
| 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 |   |

 

Condensed consolidated statement ofoperations for the 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 | ) |

 

F-29

----

 

Condensedconsolidated statement of cash flows for the year ended December 31, 2002:

 
| ** **                                                                                            | ** ** | **Predecessor** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                            | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                                                                                  |       |            |       |   |   |   |   |   |   |
| **Cash  flows from operating activities**                                                             |       |            |       |   |   |   |   |   |   |
| Net income                                                                                            |       | $               | 1,413,848  |   | $ | 8,247,129 |   | $ | (8,380,014 | ) | $ | 1,280,963 |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities           |       |            |       |   |   |   |   |   |   |
| Depreciation of property and equipment                                                                |       | 856,950         |       | 774,741 |   | — |   | 1,631,691 |   |
| Equity in earnings of subsidiary guarantors                                                           |       | (8,247,129      | )          | — |   | 8,247,129 |   | — |   |
| Loss on disposal of assets                                                                            |       | 13,654          |       | — |   | — |   | 13,654 |   |
| Deferred income tax benefit                                                                           |       | (200,500        | )          | — |   | — |   | (200,500 | ) |
| Compensation expense for Employee Stock  Ownership Trust shares released and committed to be released |       | 4,541,114       |       | — |   | — |   | 4,541,114 |   |
| Compensation expense for stock options                                                                |       | 7,062,874       |       | — |   | — |   | 7,062,874 |   |
| Changes in assets and liabilities                                                                     |       |            |       |   |   |   |   |   |   |
| Trade accounts receivable                                                                             |       | (4,606,762      | )          | (2,423,364 | ) | — |   | (7,030,126 | ) |
| Interdivisional receivables/payables, net                                                             |       | 5,093,018       |       | (5,093,018 | ) | — |   | — |   |
| Inventories                                                                                           |       | (4,278,347      | )          | (3,853,821 | ) | 132,885 |   | (7,999,283 | ) |
| Prepaid expenses and other current assets                                                             |       | 28,105          |       | (125,658 | ) | — |   | (97,553 | ) |
| Other noncurrent asset                                                                                |       | —          |       | (71,616 | ) | — |   | (71,616 | ) |
| Trade accounts payable and accrued expenses                                                           |       | 2,331,184       |       | 1,568,682 |   | — |   | 3,899,866 |   |
| Taxes payable                                                                                         |       | 6,635           |       | (104,987 | ) | — |   | (98,352 | ) |
| Net cash provided by (used in) operating  activities                                                  |       | 4,014,644       |       | (1,081,912 | ) | — |   | 2,932,732 |   |
| **Cash  flows from investing activities**                                                             |       |            |       |   |   |   |   |   |   |
| Additions to notes receivable                                                                         |       |            |       |   |   |   |   |   |   |
| Payments received on notes receivable                                                                 |       | 170,697         |       | 83,761 |   | — |   | 254,458 |   |
| Proceeds from the sale of investments                                                                 |       | 928,571         |       | — |   | — |   | 928,571 |   |
| Purchase of investments                                                                               |       | (1,000,000      | )          | (2,000,000 | ) | — |   | (3,000,000 | ) |
| Capital expenditures                                                                                  |       | (4,590,897      | )          | (1,454,632 | ) | — |   | (6,045,529 | ) |
| Net cash used in investing activities                                                                 |       | (4,491,629      | )          | (3,370,871 | ) | — |   | (7,862,500 | ) |
| **Cash  flows from financing activities**                                                             |       |            |       |   |   |   |   |   |   |
| Change in book overdraft                                                                              |       | —          |       | 160,585 |   | — |   | 160,585 |   |
| Net increase in the line of credit                                                                    |       | 2,800,000       |       | 3,900,000 |   | — |   | 6,700,000 |   |
| Proceeds from issuance of long-term debt                                                              |       | 3,425,000       |       | — |   | — |   | 3,425,000 |   |
| Principal payments on long-term debt                                                                  |       | (6,577,792      | )          | — |   | — |   | (6,577,792 | ) |
| Net cash (used in) provided by financing  activities                                                  |       | (352,792        | )          | 4,060,585 |   | — |   | 3,707,793 |   |
| Net decrease in cash and cash equivalents                                                             |       | (829,777        | )          | (392,198 | ) | — |   | (1,221,975 | ) |
| **Cash and  cash equivalents**                                                                        |       |            |       |   |   |   |   |   |   |
| Beginning of year                                                                                     |       | 1,480,299       |       | 784,047 |   | — |   | 2,264,346 |   |
| End of year                                                                                           |       | $               | 650,522    |   | $ | 391,849 |   | $ | — |   | $ | 1,042,371 |   |

 

F-30

----

 

Condensedconsolidated statement of cash flows for the 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-31

----

 

Condensedconsolidated statement of cash flows for the six-month period endedJune 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-32

----

 

Condensedconsolidated statement of cash flows for the six-month period endedDecember 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-33

----